Significance of Product Life Cycle

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. 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 Product life cycle comprises four stages: Introduction stage Growth stage Maturity stage Decline stage product-life-cycle-stages-plc Fig 1: product life-cycle Product Life Cycle (PLC) Introduction stage 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.ÂÂ   This means that a product which is distinct when new degenerates over the years into a common commodity.ÂÂ   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.ÂÂ   The cycle begins with the invention of a new product and is often followed by patent protection, and further development to make it saleable.ÂÂ   This is usually followed by a rapid expansion in its sales as the product gains market acceptance.ÂÂ   Then competitors enter the field with imitation and rival products and the distinctiveness of the new product starts diminishing.ÂÂ   The speed of degeneration differs from product to product.ÂÂ   While some products fail immediately on birth or a little later, others may live long enough.ÂÂ   BPLs picture in pi cture TV was eliminated at the introduction stage itself.ÂÂ   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.ÂÂ   The product is put on the market; awareness and acceptance are minimal.ÂÂ   There are high promotional costs.ÂÂ   Sometimes a product may generate a new demand, for example, Maggi.ÂÂ   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.ÂÂ   High and sharply rising profits may be witnessed.ÂÂ   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.ÂÂ   Also, the last of the unsuccessful competing brands will probably withdraw from the market.ÂÂ   For this reason, sales are likely to continue to rise while the customers for the withdrawn brands are mopped up by the survivors.ÂÂ   There is no improvement in the product but changes in selling effort are common.ÂÂ   Profit margins slip despite rising sales. Saturation. Sales reach and remain on a plateau marked by the level of replacement demand.ÂÂ   There is little additional demand to be stimulated. Decline.ÂÂ  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. http://www.mbaknol.com/wp-content/uploads/2010/06/product-life-cycle.jpg Time Fig 2: product life-cycle of BPL TVs There are several reasons why the life-cycle of a product tends to be short :ÂÂ   (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.ÂÂ   Improvements offered by one company are likely to be met and, if possible, exceeded by competitors in a relatively short period.ÂÂ   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.ÂÂ   This is what happened in the case of many products like ball-point pens, transistors, radios, etc.ÂÂ   Throughout the cycle, changes take place in price and promotional elasticity of demand as also in the production and distribution costs of the product.ÂÂ   Pricing policy, therefore, must be adjusted over the various phases of the cycle. Product life-cycle concentrates only the life-cycle of a product beginning with its introduction into the market to the post-marketing phase.ÂÂ   However, a series of processes are to be undertaken by the management even prior to the introduction of a product in the market.ÂÂ   These processes include exploration, screening, analysis, development, testing, etc.ÂÂ   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.ÂÂ   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.ÂÂ   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.ÂÂ   A product might not pass through every stage in the cycle.ÂÂ   Some products, for instance, might not get past the introductory stage, while others might not get past the growth or even the maturity stage.ÂÂ   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.ÂÂ   Some products, for instance, might not get past the maturity stage.ÂÂ   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.ÂÂ   Some products might even hustle through the entire cycle in an amazingly short period.ÂÂ   In certain cases, there might even be a repos itioning of a product, which might trigger off a new growth cycle.ÂÂ   http://www.dineshbakshi.com/phocadownload/product-life-cycle.jpg ÂÂ  Fig 3: product life-cycle of Facebook