Product life cycle
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Product life cycle simplified
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Product life cycle
- 1. Product Life Cycles • Product Life Cycle (PLC): – Each product may have a different life cycle – PLC determines revenue earned – Contributes to strategic marketing planning – May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal, etc. – May help in new product development planning – May help in forecasting and managing cash flow
- 2. Product Life Cycle Sales & Profit Sales Profit Product Development Introduction Growth Maturity Decline
- 3. Product Life Cycles • The Stages of the Product Life Cycle: – Development – Introduction/Launch – Growth – Maturity – Saturation – Decline – Withdrawal
- 4. Product Life Cycles • The Development Stage: • Initial Ideas – possibly large number • May come from any of the following – – Market research – identifies gaps in the market – Monitoring competitors – Planned research and development (R&D) – Luck or intuition – stumble across ideas? – Creative thinking – inventions, hunches? – Futures thinking – what will people be using/wanting/needing 5,10,20 years hence?
- 5. Product Life Cycles • Product Development: Stages – New ideas/possible inventions – Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? – Product Development and refinement – Test Marketing – possibly local/regional – Analysis of test marketing results and amendment of product/production process – Preparations for launch – publicity, marketing campaign
- 6. Product Life Cycles • Introduction/Launch: – Advertising and promotion campaigns – Target campaign at specific audience? – Monitor initial sales – Maximise publicity – High cost/low sales – Length of time – type of product
- 7. Stages of the Product Life Cycle Introduction • Low sales • High costs per customer • Negative profits • Innovator customers • Few competitors • Objective: to create awareness and trial • Offer a basic product • Price at cost-plus • Selective distribution • Awareness – dealers and early adopters • Induce trial via heavy sales promotion
- 8. Stages of the Product Life Cycle Growth • Rising sales • Average costs • Rising profits • Early adopters customers • Growing competition • Objective: maximize market share • Offer service, product extensions, warranty • Price to penetrate • Intensive distribution • Awareness and interest – mass market • Reduce promotions due to heavy demand
- 9. Product Life Cycles • Growth: – Increased consumer awareness – Sales rise – Revenues increase – Costs - fixed costs/variable costs, profits may be made – Monitor market – competitors reaction?
- 10. Product Life Cycles • Maturity: – Sales reach peak – Cost of supporting the product declines – Ratio of revenue to cost high – Sales growth likely to be low – Market share may be high – Competition likely to be greater – Price elasticity of demand? – Monitor market – changes/amendments/new strategies?
- 11. Product Life Cycles • Saturation: • New entrants likely to mean market is ‘flooded’ • Necessity to develop new strategies becomes more pressing: – Searching out new markets: • Linking to changing fashions • Seeking new or exploiting market segments • Linking to joint ventures – media/music, etc. – Developing new uses – Focus on adapting the product – Re-packaging or format
- 12. Stages of the Product Life Cycle Maturity • Peak sales • Low costs • High profits • Middle majority customers • Stable/declining competition • Objective: maximize profit while defending market share • Diversify brands/items • Price to match or beat competition • Intensive distribution • Stress brand differences and benefits • Increase promotions to encourage switching
- 13. Product Life Cycles • Decline and Withdrawal: – Product outlives/outgrows its usefulness/value – Fashions change – Technology changes – Sales decline – Cost of supporting starts to rise too far – Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?
- 14. Stages of the Product Life Cycle Decline • Declining sales • Low costs • Declining profits • Laggard customers • Declining competition • Objective: reduce costs and milk the brand • Phase out weak models • Cut price • Selective distribution • Reduce advertising to levels needed to retain hard-core loyalists • Reduce promotions to minimal levels
- 15. • The product life cycle concept can be applied to a: – Product class (soft drinks) – Product form (diet colas) – Brand (Diet Dr. Pepper) • Using the PLC to forecast brand performance or to develop marketing strategies is problematic Product Life-Cycle Strategies
- 16. Product Life-Cycle Strategies • Product development • Introduction • Growth • Maturity • Decline • Begins when the company develops a new-product idea • Sales are zero • Investment costs are high • Profits are negative PLC StagesPLC Stages
- 17. Product Life-Cycle Strategies • Product development • Introduction • Growth • Maturity • Decline • Low sales • High cost per customer acquired • Negative profits • Innovators are targeted • Little competition PLC StagesPLC Stages
- 18. The Strategies in The Product Life Cycle • Introduction Stage: High priceHigh price Low promotionLow promotion Low priceLow price High promotionHigh promotion
- 19. • Product – Offer a basic product • Price – Use cost-plus basis to set • Distribution – Build selective distribution • Advertising – Build awareness among early adopters and dealers/resellers • Sales Promotion – Heavy expenditures to create trial Marketing Strategies: Introduction Stage
- 21. The Strategies in The Product Life Cycle • Growth Stage: High market share High market share High current profit High current profit
- 22. • Product – Offer product extensions, service, warranty • Price – Penetration pricing • Distribution – Build intensive distribution • Advertising – Build awareness and interest in the mass market • Sales Promotion – Reduce expenditures to take advantage of consumer demand Marketing Strategies: Growth Stage
- 23. • The Strategies in The Product Life Cycle • Maturity Stage: Modifying the Market Modifying the Market Modifying the Product Modifying the Product Modifying the Marketing Mix Modifying the Marketing Mix
- 24. • Product – Diversify brand and models • Price – Set to match or beat competition • Distribution – Build more intensive distribution • Advertising – Stress brand differences and benefits • Sales Promotion – Increase to encourage brand switching Marketing Strategies: Maturity Stage
- 25. • The Strategies in The Product Life Cycle • Decline Stage: MaintainMaintain HarvestHarvest DropDrop
- 26. • Product – Phase out weak items • Price – Cut price • Distribution – Use selective distribution: phase out unprofitable outlets • Advertising – Reduce to level needed to retain hard-core loyalists • Sales Promotion – Reduce to minimal level Marketing Strategies: Decline Stage
- 27. Marketing Strategy & the Product Life Cycle
- 28. Product Life Cycle http://www.tutor2u.net/business/marketing/products_lifecycle.asp Introduction Growth Maturity Decline E-conferencing email faxes Handwritten letters Third generation mobile phones Portable CD players Personal Computers Typewriter Iris-based personal identity cards Smart cards Credit cards Check books Examples of products in various stages of the product life cycle
- 29. Product Adoption Process AwarenessAwareness The buyer becomes more aware of the product InterestInterest The buyer seeks information and is receptive to learning about the product EvaluationEvaluation The buyer considers the product’s benefits and decides whether to try the product TrialTrial The buyer examines, tests, or tries the product to determine if it meets needs AdoptionAdoption The buyer purchases the product and can be expected to use it again when the need for this type of product arises
- 31. Product Adoption Process (cont’d) • Categories of Product Adopters – Innovators: First adopters of new products – Early adopters: Careful choosers of new products – Early majority: Those adopting new products just before the average person – Late majority: Skeptics who adopt new products when they feel it is necessary – Laggards: The last adopters, who distrust new products
- 34. Product Life Cycle Regeneration - Intel 386 486 Pentium
- 35. Introduction Growth Maturity Decline PLC Management FasterFaster More profitably …More profitably … LongerLonger HigherHigher
- 36. Consumer Product Adoption Adoption Steps in the Adoption Process Trial Evaluation Interest Awareness
- 37. Consumer Product Adoption Adopter Categorization on the Basis of Relative Time of Adoption of Innovation
- 38. Consumer Adoption Process Communicability Five product characteristics influence the rate of adoption Complexity Relative Advantage Divisibility Compatibility
- 39. Why Some Products Fail and Others Succeed • Reasons for Product Failure – Product’s value or features did not match customer needs – Ineffective or inconsistent branding that failed to convey the right message or image to customers – Technical or design problems – Poor market timing – Overestimation of market size – Ineffective promotion – Insufficient distribution
- 41. The Product Life Cycle • Are there other types of the PLC curve? – Growth-slump-maturity pattern – Cycle-recycle pattern – Scalloped pattern – Styles, Fashions, Fads
- 42. Product Life Cycles Sales Time Development Introduction Growth Maturity Saturation Decline
- 43. Product Life Cycles Sales Time Effects of Extension Strategies
- 44. Product Life Cycles Sales/Profits Time PLC and Profits PLC Losses Break Even Profits
- 45. Case study
- 46. • Kellogg’s is the world’s leading producer of breakfast cereal. In 2007, it was Britain’s leading grocery brand. • Its lines include both ready-to-eat cereal (like Rice Krispies) and cereal bars. • Kellogg’s divides its markets into six segments so that marketing can be targeted. • Each brand has to hold its own in its market. If a brand is not performing as well as it should, the business must do something about it.
- 47. • Nutri-grain was designed to meet the needs of busy people who had • missed breakfast, providing a healthy cereal breakfast in a bar. At launch in 1997, Nutri-Grain immediately gained 50% market share; • Growth was maintained by bringing out new versions and repositioning the bar as an ‘all day snack’.
- 48. • At maturity, competitor brands (like Alpen) started to chip away at market share. Some variants (such as Minis and Twists) struggled, whilst some grew (like Elevenses) but could not halt the overall decline. • At saturation, the market is ‘full’. Better or cheaper competing products have come to market. By mid- 2004, Nutri-grain faced declining sales in a growing market. • Decline: at this point Kellogg had to decide whether to let the product die or use an extension strategy to lengthen its life.
- 49. • Kellogg had to decide whether the problem with Nutri-Grain was the market, the product or both. It could see – that the market was growing, but that customer tastes were changing. – The choice was therefore between product development or diversification. The first of these carries much lower costs and risks.
- 50. • Research showed Kellogg that: • the brand message was not strong enough • some other Kellogg’s products (like Minis) had taken the focus from Nutri- Grain • Soft Bake and Elevenses did not receive enough marketing support, despite having 80% of sales • market growth was being driven by discounts, rather than any permanent factors.
- 51. Kellogg re-branded and re launched Nutri-Grain in 2005. The bars had a new brand image. They also had a stronger unique selling point (Nutri-Grain is more healthy because it is baked). Kellogg also put more promotional investment into the core brands and dropped some of the others.
- 52. • As a result, Soft Bake Bar sales grew, with Elevenses sales up by almost 50%. • The Nutri-Grain brand grew at almost three times that of the market and maintained this even after the re-launch was over
- 54. Definition • New Product Development – Development of original products, product improvements, product modifications, and new brands through the firm’s own R & D efforts.
- 55. New Product Development • Six product development options: – New-to-the-world products (discontinuous innovations) • I-Pod – New product lines • Sony MP3 players – Product line extensions • Pepsi Blue – Improvements or revisions of existing products • Shampoo w/ conditioner – Repositioning • Cadbury’s – Cost reductions • Hard back vs Paper back
- 56. • New products can be obtained via acquisition or development. • New products suffer from high failure rates. • Several reasons account for failure. New Product Development Strategy
- 57. • New Product Development Process: – Stage 1: Idea Generation • Internal idea sources: – R & D • External idea sources: – Customers, competitors, distributors, suppliers New Product Development Strategy
- 58. • New Product Development Process: – Stage 2: Idea Screening • Product development costs increase substantially in later stages. • Ideas are evaluated against criteria; most are eliminated. New Product Development Strategy
- 59. • New Product Development Process: – Stage 3: Concept Development and Testing • Product concepts provide detailed versions of new product ideas. • Concept tests ask target consumers to evaluate product concepts. New Product Development Strategy
- 60. • New Product Development Process: – Stage 4: Marketing Strategy Development • Strategy statements describe: – The target market, product positioning, and sales, share, and profit goals for the first few years. – Product price, distribution, and marketing budget for the first year. – Long-run sales and profit goals and the marketing mix strategy. New Product Development Strategy
- 61. • New Product Development Process: – Stage 5: Business Analysis • Sales, cost, and profit projections – Stage 6: Product Development • Prototype development and testing New Product Development Strategy
- 62. • New Product Development Process: – Stage 7: Test Marketing • Standard test markets • Controlled test markets • Simulated test markets – Stage 8: Commercialization New Product Development Strategy
- 63. Success rate of new products • The success rate of new products is very low – less than 5%. • Product obsolescence is rapid with improvements in technology • Shorter PLCs • Most new product development is an improvement on existing products • Less than 10% of new products are totally new concepts.
- 64. • $50 billion in profits over 27 years • Early new-product development relied heavily on copying the competition • $4.2 billion annually invested in R & D • Innovation is critical to Microsoft’s future success • Much of R & D efforts are Internet related • Many new products and services are in development MicrosoftMicrosoft Case Study