The Product Life Cycle
Monday, November 25, 2013
We're regularly bombarded by advertisements telling us about exciting
new features of existing products: a car that now has SatNav as
standard, perhaps; a brand of shampoo with a new, improved formula;
or a snack that now contains even more delicious fruit.
Yet, at the same time, if we go to the shops, there are hundreds
of products which are seemingly not advertised at all.
So why are some established products regularly given make-overs
and generous new marketing budgets, while others are apparently
left to sell themselves?
One answer is that the marketers are acting
according to where the item is in its product lifecycle.
Understanding the Model
Just as people go through infancy, childhood, adult hood and old
age, so too do products and brands. And just as we swing from
being needy, to being overall contributors to our families or to
society, and then back to being needy again over the course of our
lives, so – in effect – do products.
The four phases usually used to describe a product's life cycle are:
Introduction.
Growth.
Maturity.
Decline.
Tip:
Sometimes a pre-launch Development phase is also included,
but as the main application of the idea of the product
lifecycle is to guide the type of marketing used, we'll not
consider it here.
During the earlier parts of the product lifecycle, the cost of
promoting the product may be larger than the revenue it brings in.
However, for successful products that are marketed effectively,
the product will become increasingly profitable during the Growth
and Maturity phases. A typical lifecycle for a well-managed
product is shown in Figure 1, below.
As products moves from lifecycle phase to lifecycle phase, the elements of the marketing mix used to promote them change.
During the Introduction phase , there will most-likely be heavy promotional and advertising activity designed to raise awareness of the new product, and to seek sales amongst early adopters – adventurous consumers who like to own cutting edge products.
Depending on the nature of the product, it will either have a premium price so that its development costs can be recouped quickly (this is the approach used with most high-tech products) or be priced low to encourage widespread adoption – what marketers call "market penetration".
Moving on to the Growth phase , promotional activities will tend
to focus on expanding the market for the product into new segments – usually either geographic or demographic – and supporting this
by expanding the product family, for example with new flavors or
sizes (cartons of fruit drinks specifically sized for kids lunch
boxes, for instance).
By the time a product reaches its Maturity phase , the company
producing it needs to reap considerable rewards for the time and
money spent developing the product so far.
The product's features may continue to be refreshed from time to
time, and there will still be some promotion to differentiate the
product from the competition and increase market share. However,
the marketing activity and expenditure levels may be much lower
than earlier on in the lifecycle.
Finally, once the product begins to Decline , marketing support
may be withdrawn completely, and sales will entirely be the result
of the product's residual reputation amongst a small market
sector. (Elderly people, for example, may go on buying brands that
they started using forty or even fifty years earlier.)
By this stage, the most important decision that needs to be made
is when to take the product off the market completely. It can be
tempting to leave a declining product on the market – especially
if it served the company well in its time, and there's a certain
sentimental attachment to it. However, it is essential that the
product is not allowed to start costing its producer money, and
this can easily happen if production costs increase as volumes
drop.
More importantly, the old product's very existence can absorb
managers' time and energy, and can discourage or delay the
development of a new, potentially more profitable replacement
product.
Controlling the Length of Lifecycle Phases
The duration of each lifecycle phase can be controlled, to a
certain extent. This is particularly true of the Maturity phase:
this is the most important one to extend from a financial point of
view because this is the period when the product is at its most
profitable.
Typical tactics designed to extend the maturity phase include:
Increasing the amount of the product used by existing customers
(this is why food producers issue recipe cards that use their
ingredients).
Adding or updating product features.
Price promotions to attract customers who use a rival brand.
Advertising to encourage trial of the product people who don't
use this category of product at all.
Limitations of the Model
One criticism of the product lifecycle concept is that it in no
way predicts the length of each phase, and nor can it be used to
forecast sales with any accuracy.
Another is that the model can be self-fulfilling: If a marketer
decides that a product is approaching its Decline phase, and so
stops actively marketing it, the product's sales will almost
inevitably decline. This might not have happened had it been
managed as if it was still in its Maturity phase.
Furthermore, it's possible that by improving a product
aggressively on an ongoing basis, growth can continue for a long
time. Just think of the market for PCs in the 1980s and 1990s:
Successful producers launched new and better products month after
month after month.
Successful marketers need to draw on a wide range of data and
analysis to help them decide which phase a product is in, and
whether that phase can be extended. And while this model is useful
and thought-provoking, they need to base their decisions on a good
understanding of the facts.
Key Points
The Product Lifecycle model describes how products go through the
four phases of Introduction, Growth, Maturity and Decline after
they are launched. Each phase requires a different mix of
marketing activities to maximize the lifetime profitability of the
product. In general, this involves early investment to help secure
revenue later on.
While the model does not predict sales, when used alongside
carefully analyzed sales figures and forecasts, it provides a
useful guide to marketing tactics that may be most appropriate at
a given time.
Tags:
Skills, Strategy Tools
new features of existing products: a car that now has SatNav as
standard, perhaps; a brand of shampoo with a new, improved formula;
or a snack that now contains even more delicious fruit.
Yet, at the same time, if we go to the shops, there are hundreds
of products which are seemingly not advertised at all.
So why are some established products regularly given make-overs
and generous new marketing budgets, while others are apparently
left to sell themselves?
One answer is that the marketers are acting
according to where the item is in its product lifecycle.
Understanding the Model
Just as people go through infancy, childhood, adult hood and old
age, so too do products and brands. And just as we swing from
being needy, to being overall contributors to our families or to
society, and then back to being needy again over the course of our
lives, so – in effect – do products.
The four phases usually used to describe a product's life cycle are:
Introduction.
Growth.
Maturity.
Decline.
Tip:
Sometimes a pre-launch Development phase is also included,
but as the main application of the idea of the product
lifecycle is to guide the type of marketing used, we'll not
consider it here.
During the earlier parts of the product lifecycle, the cost of
promoting the product may be larger than the revenue it brings in.
However, for successful products that are marketed effectively,
the product will become increasingly profitable during the Growth
and Maturity phases. A typical lifecycle for a well-managed
product is shown in Figure 1, below.
As products moves from lifecycle phase to lifecycle phase, the elements of the marketing mix used to promote them change.
During the Introduction phase , there will most-likely be heavy promotional and advertising activity designed to raise awareness of the new product, and to seek sales amongst early adopters – adventurous consumers who like to own cutting edge products.
Depending on the nature of the product, it will either have a premium price so that its development costs can be recouped quickly (this is the approach used with most high-tech products) or be priced low to encourage widespread adoption – what marketers call "market penetration".
Moving on to the Growth phase , promotional activities will tend
to focus on expanding the market for the product into new segments – usually either geographic or demographic – and supporting this
by expanding the product family, for example with new flavors or
sizes (cartons of fruit drinks specifically sized for kids lunch
boxes, for instance).
By the time a product reaches its Maturity phase , the company
producing it needs to reap considerable rewards for the time and
money spent developing the product so far.
The product's features may continue to be refreshed from time to
time, and there will still be some promotion to differentiate the
product from the competition and increase market share. However,
the marketing activity and expenditure levels may be much lower
than earlier on in the lifecycle.
Finally, once the product begins to Decline , marketing support
may be withdrawn completely, and sales will entirely be the result
of the product's residual reputation amongst a small market
sector. (Elderly people, for example, may go on buying brands that
they started using forty or even fifty years earlier.)
By this stage, the most important decision that needs to be made
is when to take the product off the market completely. It can be
tempting to leave a declining product on the market – especially
if it served the company well in its time, and there's a certain
sentimental attachment to it. However, it is essential that the
product is not allowed to start costing its producer money, and
this can easily happen if production costs increase as volumes
drop.
More importantly, the old product's very existence can absorb
managers' time and energy, and can discourage or delay the
development of a new, potentially more profitable replacement
product.
Controlling the Length of Lifecycle Phases
The duration of each lifecycle phase can be controlled, to a
certain extent. This is particularly true of the Maturity phase:
this is the most important one to extend from a financial point of
view because this is the period when the product is at its most
profitable.
Typical tactics designed to extend the maturity phase include:
Increasing the amount of the product used by existing customers
(this is why food producers issue recipe cards that use their
ingredients).
Adding or updating product features.
Price promotions to attract customers who use a rival brand.
Advertising to encourage trial of the product people who don't
use this category of product at all.
Limitations of the Model
One criticism of the product lifecycle concept is that it in no
way predicts the length of each phase, and nor can it be used to
forecast sales with any accuracy.
Another is that the model can be self-fulfilling: If a marketer
decides that a product is approaching its Decline phase, and so
stops actively marketing it, the product's sales will almost
inevitably decline. This might not have happened had it been
managed as if it was still in its Maturity phase.
Furthermore, it's possible that by improving a product
aggressively on an ongoing basis, growth can continue for a long
time. Just think of the market for PCs in the 1980s and 1990s:
Successful producers launched new and better products month after
month after month.
Successful marketers need to draw on a wide range of data and
analysis to help them decide which phase a product is in, and
whether that phase can be extended. And while this model is useful
and thought-provoking, they need to base their decisions on a good
understanding of the facts.
Key Points
The Product Lifecycle model describes how products go through the
four phases of Introduction, Growth, Maturity and Decline after
they are launched. Each phase requires a different mix of
marketing activities to maximize the lifetime profitability of the
product. In general, this involves early investment to help secure
revenue later on.
While the model does not predict sales, when used alongside
carefully analyzed sales figures and forecasts, it provides a
useful guide to marketing tactics that may be most appropriate at
a given time.
