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The product life cycle is an important concept in marketing. It describes the stages a product goes through from when it was first thought of until it finally is removed from the market. Not all products reach this final stage. Some continue to grow and others rise and fall.
The main stages of the product life cycle are:
A branded good can enjoy continuous growth, such as Microsoft, because the product is being constantly improved and advertised, and maintains a strong brand loyalty.
Some key features of each stage in the product life cycle can be summarised as follows:
Introduction
•New product launched on the market •Low level of sales •Low capacity utilisation •High unit costs - teething problems occur •Usually negative cash flow •Distributors may be reluctant to take an unproven product •Heavy promotion to make consumers aware of the productRelevant strategies at the introduction stage might include:
•Aim – to encourage customer adoption •High promotional spending to create awareness and inform people •Either skimming or penetration pricing •Limited, focused distribution •Demand initially from “early adopters”Growth
•Expanding market but arrival of competitors •Fast growing sales •Rise in capacity utilisation •Product gains market acceptance •Cash flow may become positive •Unit costs fall with economies of scale •The market grows, profits rise but attracts the entry of new competitorsRelevant strategies at the growth stage might include:
•Advertising to promote brand awareness •Increase in distribution outlets - intensive distribution •Go for market penetration and (if possible) price leadership •Target the early majority of potential buyers •Continuing high promotional spending •Improve the product - new features, improved styling, more optionsMaturity
•Slower sales growth as rivals enter the market = intense competition + fight for market share •High level of capacity utilisation •High profits for those with high market share •Cash flow should be strongly positive •Weaker competitors start to leave the market •Prices and profits fallThere is a wide variety of possible options for a product that has reached the maturity stage:
•Product differentiation & product improvements •Rationalisation of capacity •Competitor based pricing •Promotion focuses on differentiation •Persuasive advertising •Intensive distribution •Enter new segments •Attract new users •Repositioning •Develop new usesDecline Stage
Common features at this stage include:
•Falling sales •Market saturation and/or competition •Decline in profits & weaker cash flows •More competitors leave the market •Decline in capacity utilisation –switch capacity to alternative productsPotential strategies are:
•Harvest by spending little on marketing the product •Rationalise by weeding out product variations •Price cutting to maintain competitiveness •Promotion to retain loyal customers •Distribution narrowedExtension strategies
These extend the life of the product before it goes into decline. Again businesses use marketing techniques to improve sales. Examples of the techniques are: