CmpCert

1. STUDY SESSION
PRODUCT LIFE CYCLE

2. Agenda
• Introduction
• Product Life cycle graph
• Market Introduction
• Market Growth
• Market Maturity
• Sales Decline
• Pros and Cons
• Product Life cycle management
• Boston matrix
• Summary

3. INTRODUCTION
PRODUCT LIFE CYCLE

4. Introduction
• A new product progresses through a sequence of stages
from introduction to growth, maturity, and decline.
• This sequence is known as the product life cycle and is
associated with changes in the marketing situation, thus
impacting the marketing strategy and the marketing mix.

5. PRODUCT LIFE CYCLE
GRAPH
PRODUCT LIFE CYCLE

6. Product Life Cycles and the Boston Matrix
Sales
Time
Development Introduction Growth Maturity Saturation Decline

7. Stages
Introduction
• In the introduction stage, the firm seeks to build product awareness
and develop a market for the product
Growth Stage
• In the growth stage, the firm seeks to build brand preference and
increase market share
Maturity Stage
• At maturity, the strong growth in sales diminishes. Competition may
appear with similar products. The primary objective at this point is to
defend market share while maximizing profit
Decline Stage
• As sales starting falling its called the decline stage

8. INTRODUCTION STAGE
PRODUCT LIFE CYCLE

9. Stage 1: Market Introduction
• When the product is introduced, sales will be low until
customers become aware of the product and its benefits.
Some firms may announce their product before it is
introduced, but such announcements also alert
competitors and remove the element of surprise.
• Advertising costs typically are high during this stage in
order to rapidly increase customer awareness of the
product and to target the early adopters. During the
introductory stage the firm is likely to incur additional
costs associated with the initial distribution of the product.
These higher costs coupled with a low sales volume
usually make the introduction stage a period of negative
profits.

10. Stage 1: Market Introduction
• Sales are low as the new idea is first introduced to the
market.
• Customers may not be aware of the product’s benefits
and features and may not be aware of the product itself.
• Most companies experience losses during the market
introduction stage.
• A lot of money is spent on promotion and product
development to build product awareness.
• Promotion is aimed at innovators and early adopters.
• Pricing:
• Low penetration pricing
• High skim pricing

11. Stage 1: Market Introduction
Sales
Costs
Profits
Marketing Objectives
Product
Price
Low sales
High cost per customer
Negative
Create product awareness
and trial
Offer a basic product
Use cost-plus
Distribution Build selective distribution
Advertising Build product awareness among early
adopters and dealers

12. Stage 1: Market Introduction
• During the introduction stage, the primary goal is to establish a
market and build primary demand for the product class. The
following are some of the marketing mix implications of the
introduction stage:
• Product - one or few products, relatively undifferentiated
• Price - Generally high, assuming a skim pricing strategy for a
high profit margin as the early adopters buy the product and
the firm seeks to recoup development costs quickly. In some
cases a penetration pricing strategy is used and introductory
prices are set low to gain market share rapidly.
• Distribution - Distribution is selective and scattered as the firm
commences implementation of the distribution plan.
• Promotion - Promotion is aimed at building brand awareness.
Samples or trial incentives may be directed toward early
adopters. The introductory promotion also is intended to
convince potential resellers to carry the product.

13. GROWTH STAGE
PRODUCT LIFE CYCLE

14. Stage 2: Market Growth
• The growth stage is a period of rapid revenue growth.
Sales increase as more customers become aware of the
product and its benefits and additional market segments
are targeted. Once the product has been proven a
success and customers begin asking for it, sales will
increase further as more retailers become interested in
carrying it.
• The marketing team may expand the distribution at this
point. When competitors enter the market, often during
the later part of the growth stage, there may be price
competition and/or increased promotional costs in order to
convince consumers that the firm's product is better than
that of the competition.

15. Stage 2: Market Growth
• Rapid growth in sales and profits
• More product awareness
• Competitors see the opportunity and enter the market.
• Some competitors will copy the product or may try to
make it better or more appealing to other target
markets.
• The new entries result in more product variety.
• Promotion is aimed at a broader audience.
• More distribution channels are established.

16. Stage 2: Market Growth
Sales
Costs
Profits
Marketing Objectives
Product
Price
Rapidly rising sales
Average cost per customer
Rising profits
Maximize market share
Offer product extensions, service,
warranty
Price to penetrate market
Distribution Build intensive distribution
Advertising Build awareness and interest in the
mass market

17. Stage 2: Market Growth
• During the growth stage, the goal is to gain consumer
preference and increase sales. The marketing mix may be
modified as follows:
• Product - New product features and packaging options;
improvement of product quality.
• Price - Maintained at a high level if demand is high, or
reduced to capture additional customers.
• Distribution - Distribution becomes more intensive. Trade
discounts are minimal if resellers show a strong interest in
the product.
• Promotion - Increased advertising to build brand
preference.

18. MATURITY STAGE
PRODUCT LIFE CYCLE

19. Stage 3: Market Maturity
• The maturity stage is the most profitable. While sales
continue to increase into this stage, they do so at a slower
pace. Because brand awareness is strong, advertising
expenditures will be reduced. Competition may result in
decreased market share and/or prices.
• The competing products may be very similar at this point,
increasing the difficulty of differentiating the product. The
firm places effort into encouraging competitors' customers
to switch, increasing usage per customer, and converting
non-users into customers. Sales promotions may be
offered to encourage retailers to give the product more
shelf space over competing products.

20. Stage 3: Market Maturity
• Most common stage in the cycle.
• Sales begin to level off.
• The competition gets tougher as more competitors have
entered the market.
• Increased competition creates a downward movement
in prices.
• Industry profits are largest, but it is also when industry
profits begin to decline.
• Promotion is targeted to create brand differentiation.

21. Maturity Stage of the PLC
Sales
Costs
Profits
Marketing Objectives
Product
Price
Peak sales
Low cost per customer
High profits
Maximize profit while defending
market share
Diversify brand and models
Price to match or best competitors
Distribution Build more intensive distribution
Advertising Stress brand differences and benefits

22. Stage 3: Market Maturity
• During the maturity stage, the primary goal is to maintain
market share and extend the product life cycle. Marketing
mix decisions may include:
• Product - Modifications are made and features are added
in order to differentiate the product from competing
products that may have been introduced.
• Price - Possible price reductions in response to
competition while avoiding a price war.
• Distribution - New distribution channels and incentives to
resellers in order to avoid losing shelf space.
• Promotion - Emphasis on differentiation and building of
brand loyalty. Incentives to get competitors' customers to
switch.

23. DECLINE STAGE
PRODUCT LIFE CYCLE

24. Stage 4: Sales Decline
• Eventually sales begin to decline as the market becomes
saturated, the product becomes technologically obsolete,
or customer tastes change.
• If the product has developed brand loyalty, the profitability
may be maintained longer. Unit costs may increase with
the declining production volumes and eventually no more
profit can be made.

25. Stage 4: Sales Decline
• Sales continue to decline.
• Shrinking market
• New products replace the old.
• Firms will often try to use extension strategies.
• Companies may be able to keep some sales by appealing
to their most loyal customers.

26. Sales
Costs
Profits
Marketing Objectives
Product
Price
Declining sales
Low cost per customer
Declining profits
Reduce expenditure and milk the brand
Phase out weak items
Cut price
Distribution Go selective: phase out unprofitable
outlets
Advertising Reduce to level needed to retain
hard-core loyal customers
Stage 4: Sales Decline

27. Stage 4: Sales Decline
• During the decline phase, the firm generally has three
options:
• Maintain the product in hopes that competitors will exit.
Reduce costs and find new uses for the product.
• Harvest it, reducing marketing support and coasting along
until no more profit can be made.
• Discontinue the product when no more profit can be made
or there is a successor product.

28. Stage 4: Sales Decline
When in the decline stage, a firm may:
• Maintain: enhance the product by finding new uses or by
adding new features.
• Harvest: reduce costs and continue to offer the product to
a targeted niche.
• Discontinue: sell the product to another firm, or liquidate
inventory.

29. PROS & CONS
PRODUCT LIFE CYCLE

30. Pros
• The product life cycle is a useful model when deciding
possible stages of a product or service.
• Useful to help demonstrate how marketing strategies can
vary at different stages of a product's life.
• Promotion
• Pricing Strategies

31. Cons
• Tends to be backward looking
• We only know which stage we have been in after it has
been completed.
• Only looks at a single product when most firms have many
products.
• Determinism

32. PRODUCT LIFE CYCLE
MANAGEMENT
PRODUCT LIFE CYCLE

33. PLC Management
Strategy Class Investment Policy Strategic Role Management Focus
Introduction Phased/Selective Establish a profitable
position or cut losses
Market position
1st Mover ?
Growth Aggressive Provide future cash
flow base
Sales/Share
Installed base
Maturity As needed to protect
profits (cost reduction,
line extensions, etc.)
Generate current
cash needs
Profitable Share
Decline Highly Restrictive Maximize short-term
profits; contain losses
Profits/Cash
Last in ?

34. Industry
Weak
Competitor
Product Life Cycle
Competitive Positioning
Strong
Competitor
First Mover, or
Predatory Follower
Last In …

35. Product Life Cycle
Regeneration
“Natural”
Evolution

36. Product Life Cycle
Regeneration
“Natural”
Evolution
“Induced”
Regeneration

37. Mkt A
Mkt B
Mkt C
Mkt D
Product Life Cycle
Regeneration

38. BOSTON MATRIX
PRODUCT LIFE CYCLE

39. The Boston Matrix
• A means of analysing the product portfolio and
informing decision making about possible marketing
strategies
• Developed by the Boston Consulting Group – a
business strategy and marketing consultancy in 1968
• Links growth rate, market share and cash flow

40. The Boston Matrix
• Classifies Products into four simple categories:
• Stars – products in markets experiencing high growth
rates with a high or increasing share of the market
• - Potential for high revenue growth

41. The Boston Matrix
• Cash Cows:
• High market share
• Low growth markets –
maturity stage of PLC
• Low cost support
• High cash revenue –
positive cash flows

42. The Boston Matrix
• Dogs:
• Products in a low growth
market
• Have low or declining
market share (decline
stage of PLC)
• Associated with negative
cash flow
• May require large sums
of money to support Is your product starting to
embarrass your company?

43. The Boston Matrix
• Problem Child:
• Products having a low
market share in a high
growth market
• Need money spent to
develop them
• May produce negative
cash flow
• Potential for the future? Problem children – worth spending
good money on?

44. The Boston Matrix
Problem Children Stars
Dogs Cash Cows
Market Growth
Market Share
High
Low High

45. The Boston Matrix
• Implications:
• Dogs:
• Are they worth persevering with?
• How much are they costing?
• Could they be revived in some way?
• How much would it cost to continue
to support such products?
• How much would it cost to remove
from the market?

46. The Boston Matrix
• Implications:
• Problem Children:
• What are the chances of these products securing a hold
in the market?
• How much will it cost to promote them to a stronger
position?
• Is it worth it?

47. The Boston Matrix
• Implications:
• Stars:
• Huge potential
• May have been expensive to develop
• Worth spending money to promote
• Consider the extent of their product life cycle in decision
making

48. The Boston Matrix
• Implications:
• Cash Cows:
• Cheap to promote
• Generate large amounts of cash – use for further R&D?
• Costs of developing and promoting have largely gone
• Need to monitor their performance – the long term?
• At the maturity stage of the PLC?

49. SUMMARY
PRODUCT LIFE CYCLE

50. Summary
• The life cycle concept may apply to a brand or to a
category of product. Its duration may be as short as a few
months for a fad item or a century or more for product
categories such as the gasoline-powered automobile.
• Product development is the incubation stage of the
product life cycle. There are no sales and the firm
prepares to introduce the product.
• As the product progresses through its life cycle, changes
in the marketing mix usually are required in order to adjust
to the evolving challenges and opportunities.