Strategy, Competition and Performance in Different Phases of Product Life Cycle
Question 3 Briefly discuss the strategy, competition and performance in different phases of Product Life Cycle. Illustrate PART 1: PRODUCT LIFE CYCLE MODEL DESCRIPTION The product’s life cycle – period usually consists of five major steps or phases:Product development, Product introduction, Product growth, Product maturity andfinally Product decline. These phases exist and are applicable to all products or services from a certain make of automobile to a multimillion-dollar lithography tool to a one-cent capacitor.
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These phases can be split up into smaller ones depending on the product and must be considered when a new product is to be introduced into a market since they dictate the product’s sales performance. Product Life Cycle Graph ( Reference : William D. & McCarthy J. E. Product Life Cycle: “Essentials of Marketing”, Richard D Irwin Company, 1997. ) 1. PRODUCT DEVELOPMENT PHASE Product development phase begins when a company finds and develops a new produc tidea. This involves translating various pieces of information and incorporating them into a new product.
A product is usually undergoing several changes involving a lot of money and time during development, before it is exposed to target customers via test markets. Those products that survive the test market are then introduced into a real marketplace and the introduction phase of the product begins. During the product development phase, sales are zero and revenues are negative. It is the time of spending with absolute no return. For example: – Research and development for New medicines and alternative medicines for Hypertension and Diabetes ( New Drug molecule development) 2. INTRODUCTION PHASE
The introduction phase of a product includes the product launch with its requirements to getting it launch in such a way so that it will have maximum impact at the moment of sale. A good example of such a launch is the launch of “Windows XP” by Microsoft Corporation. This period can be described as a money sinkhole compared to the maturity phase of a product. Large expenditure on promotion and advertising is common, and quick but costly service requirements are introduced. A company must be prepared to spent a lot of money and get only a small proportion of that back. In this phase distribution rrangements are introduced. Having the product in every counter is very important and is regarded as an impossible challenge. Some companies avoid this stress by hiring external contractors or outsourcing the entire distribution arrangement. This has the benefit of testing an important marketing tool such as outsourcing. Pricing is something else for a company to consider during this phase. Product pricing usually follows one or two well structured strategies. Early customers will pay a lot for something new and this will help a bit to minimize that sinkhole that was mentioned earlier.
Later the pricing policy should be more aggressive so that the product can become competitive. Another strategy is that of a pre-set price believed to be the right one to maximize sales. This however demands a very good knowledge of the market and of what a customer is willing to pay for a newly introduced product. A successful product introduction phase may also result from actions taken by the company prior to the introduction of the product to the market. These actions are included in the formulation of the marketing strategy. This is accomplished during product development by the use of market research.
Customer requirements on design, pricing, servicing and packaging are invaluable to the formation of a product design. A customer can tell a company what features of the product are appealing and what are the characteristics that should not appear on the product. He will describe the ways of how the product will become handy and useful. So in this way a company will know before its product is introduced to a market what to expect from the customers and competitors. A marketing mix may also help in terms of defining the targeted audience during promotion and advertising of the product in the introduction hase. 3. GROWTH PHASE The growth phase offers the satisfaction of seeing the product take-off in the marketplace. This is the appropriate timing to focus on increasing the market share. If the product has been introduced first into the market, (introduction into a “virgin”1 market or into an existing market) then it is in a position to gain market share relatively easily. A new growing market alerts the competition’s attention. The company must show all the products offerings and try to differentiate them from the competitors ones. A frequent modification process of the product is an effective olicy to discourage competitors from gaining market share by copying or offering similar products. Other barriers are licenses and copyrights, product complexity and low availability of product components. Promotion and advertising continues, but not in the extent that was in the introductory phase and it is oriented to the task of market leadership and not in raising product awareness. A good practice is the use of external promotional contractors. This period is the time to develop efficiencies and improve product availability and service. Cost efficiency and time-to-market and pricing and discount policy are major actors in gaining customer confidence. Good coverage in all marketplaces is worthwhile goal throughout the growth phase. Managing the growth stage is essential. Companies sometimes are consuming much more effort into the production process, overestimating their market position. Accurate estimations in forecasting customer needs will provide essential input into 1 A good example of a “virgin” market can be considered the market of China. This market was closed to most western companies and their products and is slowly opening up to new products and services. production planning process.
It is pointless to increase customer expectations and product demand without having arranged for relative production capacity. A company must not make the mistake of over committing. This will result into losing customers not finding the product “on the self”. 4. MATURITY PHASE When the market becomes saturated with variations of the basic product, and all competitors are represented in terms of an alternative product, the maturity phase arrives. In this phase market share growth is at the expense of someone else’s business, rather than the growth of the market itself. This period is the period of the ighest returns from the product. A company that has achieved its market share goal enjoys the most profitable period, while a company that falls behind its market share goal, must reconsider its marketing positioning into the marketplace. During this period new brands are introduced even when they compete with the company’s existing product and model changes are more frequent (product, brand, model). This is the time to extend the product’s life. Pricing and discount policies are often changed in relation to the competition policies i. e. pricing moves up and down accordingly with the competitors one and sales and oupons are introduced in the case of consumer products. Promotion and advertising relocates from the scope of getting new customers, to the scope of product differentiation in terms of quality and reliability. The battle of distribution continues using multi distribution channels2. A successful product maturity phase is extended beyond anyone’s timely expectations. A good example of this is “Tide” washing powder, which has grown old, and it is still growing. 5. DECLINE PHASE The decision for withdrawing a product seems to be a complex task and there a lot of ssues to be resolved before with decide to move it out of the market. Dilemmas such as maintenance, spare part availability, service competitions reaction in filling the market gap are some issues that increase the complexity of the decision process to withdraw a product from the market. Often companies retain a high price policy for the declining products that increase the profit margin and gradually discourage the “few” loyal remaining customers from buying it. Such an example is telegraph submission over facsimile or email. Dr. M. Avlonitis from the Economic University f Athens has developed a methodology, rather complex one that takes under consideration all the attributes and the subsequences of product withdrawal process. Sometimes it is difficult for a company to conceptualize the decline signals of a product. Usually a product decline is accompanied with a decline of market sales. Its recognition is sometimes hard to be realized, since marketing departments are usually too optimistic due to big product success coming from the maturity phase. This is the time to start withdrawing variations of the product from the market that are eak in their market position. This must be done carefully since it is not often apparent which product variation brings in the revenues. The prices must be kept competitive and promotion should be pulled back at a level that will make the product presence visible and at the same time retain the “loyal” customer. Distribution is narrowed. The basic channel is should be kept efficient but alternative channels should be abandoned. For an example, a 0800 telephone line with shipment by a reliable delivery company, paid by the customer is worth keeping.