Product Life Cycle As A Strategic Marketing Tool

1. Introduction

What Product Life Cycle is about The Product Life Cycle (PLC) is a theoretical concept, which put forward that any product idea will go through different stages from beginning to the end. PLC is typically divided into 4 stages and could be illustrated by a bell-shaped curve (see figure 1). The stages are, namely: · Introduction · Growth · Maturity · Decline Total sales of the product vary in each of the 4 stages. They move from zero in the introduction stage to high at maturity and then back to low in decline stage. Profit will not appear until towards the end of introduction stage when most of the costs for product development are recovered.

PLC can be used to refer to a product category or industry, a particular product brand, and even fashion, music or fads. Of course one thing we need to bear in mind is that PLC curve exhibits different shapes and length for each of the above situations. Product categories or industries tend to have the longest life cycles and their stages of growth and maturity last longer, relative to those of a product brand. As for extreme cases of fads, PLC is short and the curve shows a sharp growth and sharp decline.

In the following discussion, we will examine several examples to demonstrate how PLC serves as a useful marketing tool to indicate certain marketing strategies to be adopted for products identified in the various stages of PLC.

2. The truth of PLC as a useful tool How As products will experience different characteristics relative to the market and competition in the various PLC stages, they call for distinct marketing objectives and strategies in order to maximize return and optimize efficiency.

Looking at the 4 PLC stages: A. Introduction In this stage, sales are low as a new product is first introduced to a market. For sure customers arent looking for it and may not be aware of its benefits over current offerings or solutions. In fact, they may not even know about it and have the need for it. Informative promotion or trial offers are required to tell potential customers about this new product.

Lets look at the example of Max Factor LipFinity (LF) in Hong Kong to demonstrate this stage in reality. It is a new lasting lip color launched in Nov 2001 that never comes off even in cases of eating, drinking or even kissing; also it wont stain on clothing or cups, etc. It is only removable with a special make-up remover. And the magic is that ladies only need to apply ONCE in the morning and can last for the whole day! Yet it also appears glossy and moisturizes the lips. LF is the first-ever innovation on lip make-up in the market. It is novel in terms of its product form and way to use. Given this situation, massive advertising on TV and print were therefore run to create awareness. On retail level, eye-catching Point-of-Sale materials were well displayed, and promotion booths were set up to introduce the product. Trial samples were also offered to potential customers.

It worth noting that even a new product is heavily promoted, it takes time for consumers to learn about its availability and benefits. Money is invested in developing the market in anticipation of future profits. Losses may incur during introduction.

B. Growth In the Growth stage, there is growing acceptance and popularity for the product. Industry sales grow quickly but industry profits rise and then start falling. The pioneering firm begins to make profits as demand increases. Also, prior R&D and promotion costs are gradually recovered over time. Unit costs also fall with larger volume and learning effect. Competitors see the opportunity and enter the market with similar or even improved offerings resulting in more product variety.

At present, Digital Camera is a representative product for this stage. Growing number of people are adopting it for its better convenience and versatility over conventional cameras with films. As a result, more brands emerge to refine technology and quickly produce newer and more advanced models one after the other. Regarding user segment, it has expanded from the graphic professionals to mass. This is not only due to increased consumer awareness but also decreasing prices.

This is the stage with highest industry profits, but profits begin to decline as increased competition creates downward pressure on prices. Firms therefore able to explore new segments with lower prices to attract more price sensitive buyers.

C. Maturity This stage occurs when industry sales level off. Competition gets more intense as aggressive competitors have entered to fight for profits. Industry profits go down as firms attempt to increase market share with heavy promotion costs and price-cuts.

A lot of consumer products and services are now situated in this stage. For instance, dominating giants in their respective categories include: Coca Cola, Sony, McDonalds, Nike. It is obvious that these brands are actively advertising to reinforce their brand equity and consumer preference/ loyalty; whereas running promotions to encourage brand switching as well as pushing higher consumption of existing customers. On the other hand, to extend the maturity stage in their PLC as far as possible in the fear of going decline: firms would refresh the brands and stimulate sales by means of product modification improvements in Quality, Features and Style.

From time to time, Coca Cola would refresh their advertising and packaging. Sony keeps bringing innovations in audio-visual technology. McDonalds continuously introducing new menu items and running exciting promotions. Nike is the all-time pioneering expert in design technology and style in sports apparel.

D. Decline During this stage, old or obsolete products are replaced by the new, and then run into decline.

The most common reason for decline is technological advances. For example, dot-matrix printer replaced by color inkjets or laser printers; pagers are gradually withdrawn as more people are adopting mobile phones; trend to switch from pulse-dial to tone-dial telephone.

As sales and profit decline, firms may discontinue the products or even leave the market; so as to reallocate resources to more profitable products for more efficient operations. It is not surprising that brands like Epson will concentrate production & promotion of latest imaging and printing products rather than the obsolete dot-matrix printer. They would rather phase out the declining products and sell the unsold stock to less developed markets at very low prices. Similarly, Motorolas marketing focus would be on mobile products with wireless Internet access instead of pagers.

From the above, the PLC by all means emphasizes a product passes through various stages and finally begins to decline. This reminds marketing managers of the necessity for caution when planning production facility expansion. In addition, PLC suggests that production termination should be carried out when needed so as not to drain resources, which could be better used in new product development.

Overall speaking, the PLC concept helps marketing managers analyze product performance and to identify the strategies and resources as well as relevant information for decision making and planning.

3. Limitations of PLC as a useful tool Some criticisms & considerations The PLC concept is after all a theory and never free from critics. It may mislead marketing managers to adopt inappropriate strategies based on the model rather than real market characteristics.

A. Products or product ideas do NOT necessarily follow the sequence of stages as stipulated in the PLC model.

i) Some products may go straight to decline after introduction, when there is insufficient promotion and demand to support; OR when certain product is replaced by better alternatives before it enters into stage of growth.

Like Mondex (electronic cash though a microchip on the ATM card; smaller amounts can be directly paid from the chip as long as money is loaded from the bank account to the microchip) in Hong Kong, it suffered from the issues of being non user-friendly (cumbersome steps in money loading and payment), limited consumer awareness and slow adoption, plus limited merchant coverage. It took quite a while during introduction; and before it could enter into a stage, another similar means of payment, called Octopus, was launched. It pays by simply having contact of the smart card to the sensor. And its coverage quickly expanded from underground trains to most transport means, and then even to fast food chains. Uploading of value to Octopus card can simply be done at 7-11 stores and underground stations; while Mondex can only be uploaded through ATMs. With the growing success of Octopus, consumers began to forget about Mondex and finally led to the decline and cessation of Mondex service.

ii) In the cases of fads (Tamagochi craze, movie & theme song of Titanic and related merchandise), phenomenal sales growth is experienced immediately after introduction; but then decline abruptly as soon as the excitement is diluted. There is hardly a stage of lasting maturity before decline.

B. PLC cannot be used for forecast and its hard to predict the length of each stage We cant really tell which stage a particular product at, as numerous exogenous factors may temporarily change sales e.g. economic downturn may reduce certain luxury products consumption; fear of a disease may lower or cease particular food consumption; Singapores government ban of chewing gums in those days C. The pattern of stages within PLC is the result of marketing strategies and activities rather than an independent course of sales.

Strategies adopted by marketing managers can either promote or kill a product. Especially during the maturity stage, tactics to extend PLC such as tapping new usage segments or product improvements, brand rejuvenation, can even help save a product from decline.

Take the case of laundry detergent market, which is one of the most competitive in Germany (being at the maturity stage). This market is dominated by Persil, with a Procter & Gamble brand, Ariel, a close second. In order for Persil to fight for market share, the original detergent powder was compressed into little pellets which was purely a cosmetic change without any change in formula! It was then launched as New & Improved! and the pellets were called Persil Megaperls which led a new generation in laundry detergents. Competitors were automatically marked down as the old generation. This strategy grew sales of Persil and helped increase its market lead of 5% over Ariel! 4. Conclusion Final points to note To conclude whether or not the PLC concept is considered a useful strategic marketing tool or not would be a constant debate; as illustrated in the analysis above. This concept does offers general tactics for each stage within the PLC but these should be used as a reference point, in combination with actual market research, not as strict policies.

Nevertheless, there are important implications from the PLC theory which worth the attention of marketing managers.

l Although the life of different products varies, in general product life cycles are getting shorter. This is partly due to rapidly changing technology. One new invention creates possibilities for new products that quickly replace the old ones. Shorter life cycles require firms to constantly develop new products in order to stay competitive in the industry. This is especially obvious in computer related products, telecommunications and audio-visual equipment. Of course, other market factors such as changes in consumer tastes and lifestyle, economic and government factors should never be ignored. For instance, as people getting more health conscious, and with increasing government control on smoking in public, there has been decreasing cigarette consumption which may finally lead to decline in cigarette market.

l Subject to the differences in culture, technological level and living standards, the same product would have different length and pattern of PLC. Lets consider the PLC of condoms in US market contrast to that in Indonesian market.

l Also, taking into account of market differences, the same product will be at different stages of PLC in different markets. Its easy to imagine a product like daily disposable contact lens would be at maturity stage in markets like Europe, US or Japan; while that might only be at Introduction stage in China.

References: 1. Marketing Management (International Edition), 10th Edition Author: Philip Kotler; Publisher: Prentice Hall International, Inc.

2. What makes winning brands different Authors: Andreas Buchholz, Wolfram Wördemann; Publisher: John Wiley & Sons, Ltd.

3. Essentials of Marketing Authors: Perrault, William D. Jr., E. Jerome McCarthy; Publisher: Chicago Richard D. Irwin Company