1. Product Life Cycle

2. Product life cycle
A theoretical model
which describes the
stages a product goes
through

3. Stages in the Product Life Cycle
• Research & product
development
Theory can be
• Introduction applied to a:
• Growth Product category
• Maturity Style
Brand or model
• Decline
• Rejuvenation or
termination

4. Implications of each stage
• Net cash flow
• Profit
• Marketing strategy

5. Product life cycle and cash flow
Sales
Cash
Flow

6. Research & product development phase
• Often complex
• Absorbs significant
resources
• May not be successful
• May involves a long
lead time before sales
are achieved

7. Product development
• Often takes years but CAD is reducing product
development times
• Evaluate at each stage and ,if necessary,
abort the product idea
• The cost of development rises as it
approaches launch
• Market research including a test launch often
done to reduce the risk of product failure
• Most product ideas do not reach the launch
phase

8. Causes of elimination before launch
• Inadequate demand
• Action of competitors
• Change in the external environment
• Production problem
• High costs
• Does not fit in the firm’s product range
• Life cycle expected to be too short

9. Introduction stage
• 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 product

10. Strategies at the introduction phase
• This stage makes special demands on the
marketing function
• 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”

11. Growth stage
• 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 competitors

12. Strategies in the growth stage
• 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 options

13. Maturity
• 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 fall

14. Strategies for mature products
• Need to defend position
• 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 uses

15. Decline stage
• 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 products

16. Reasons for decline
• Technological advance
• Changes in taste and behaviour
• Increased competition
• Economic circumstances
• Damaging publicity
• Product side effects

17. Strategies for the decline phase
• Maintain market share
• 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 narrowed

18. Strategies to reduce the rate of decline
• Increase in promotion
• Focus on profitable segments
• Reduce prices
• Change distribution channels
• Product improvement
• Reposition the product

19. Extending the product life cycle
• Change price
• Change promotion (e.g new promotional
message)
• Change product - re-styling and product
improvement
• Change more efficient distribution
• Develop new market segment
• Find new uses for the product
• Reposition the product

20. Product life cycle with an extension
Sales
(£)
Time

21. Product rationalisation
• Elimination of the product – either a natural
death or termination (brand culling)
• Unless the product is profitable or has growth
potential or is seen as necessary to maintain
sales of another product the organisation
should seriously consider eliminating the
product
• Weak products take a disproportionate
amount of the firm’s financial resources and
can harm the firms image

22. The life cycle is short if….
• The rate of technological change is rapid
• There is a high degree of innovation in
the market
• Customers’ tastes are changing rapidly
• The product is a fashion item
• The product is badly marketed

23. Short product life cycle of a fashion (or fad) item
Sales
(£)
Time

24. Is decline inevitable?
• The assumption is that products go
through the cycle and inevitably reach
the decline phase
• But some classic products have a long life
cycle and no apparent sign of decline
• These are exceptions to the rule although
the life cycle can be extended
• Examples: Corn Flakes, Coca Cola

25. No apparent decline
Sales
(£)
Time

26. Uses of the product life cycle concept
• To forecast future behaviour of sales
• To be a tool of analysis to assist in the
formulation of marketing strategies
• As a manipulative device to indicate when
short-term measures might be used to distort
the life cycle to the firms advantage
• To identify deviations from the norm
• To aid the analysis of the firm’s product
portfolio

27. A balanced portfolio
• Product portfolio refers to the mix of
products produced by a single firm
• Undesirable to have too many products at
one stage
• New products involve heavy investment
and mature products might only have a
short life left to them
• A balanced portfolio is one in which the
firm has a variety of products at different
stages in the life cycle

28. Criticisms of the PLC concept
• The shape and duration of the cycle varies
• Strategic decisions can change the life cycle
• It is difficult to recognise exactly where a
product is in its life cycle
• Length cannot be reliably predicted
• Decline is not inevitable?
• Assumes no reversion to earlier consumer
preferences
• It can become a self fulfilling prophecy

29. Product life cycle of the VHS video
1976 Competing video systems launched: VHS (JVC and
Victor) and Betamax (Sony)
1980s VHS-Betamax war. VHS’s longer playing time and
more liberal licensing system gave it the edge
1984 Toshiba formulates plan for Digital Versatile Disc
1987 Betamax concedes defeat
1996 First film released on DVD
2003 US DVD rentals surpass VHS
2004 Hollywood studios stop releasing films on VHS

30. Keep up-to-date with business
stories, resources, quizzes and
worksheets for your business
course. Click the logo!