All the products have a particular duration of life, similar to human beings. As human has different stages of life (like birth, growth, aging, and death), product also passes through several definite stages, which can be easily identified by marketers. Right from the time of concept generation, during product development, and upto the time of product launch, the product is said to be in its pre-initial stage. The life of the product starts with its introduction into the market. It then experiences a rapid expansion in its market, This Stage is followed by steady growth of the product resulting in its maturity. Subsequently, there comes a Stage, when the market for the product decays and finally its life ends. Product life cycle can be defined as ‘the change in sales volume of a specific product offered by an organisation, over the expected life of the product.”
The concept of product life cycle (PLC) is used by marketers to design a series of strategies for dealing with each and every stage, the product passes through. For a product, market conditions change with the change of its position in the PLC, therefore, it must be managed through effective strategies.
Stages of Product Life Cycle
Generally, product life cycle graph is a bell-shaped curve. This Curve consists of following four stages:
- Introduction
- Growth
- Maturity
- Decline
Introduction: Introduction stage is the stage at which product is introduced into the market. This stage is characterised by presence of slow sales growth. There is no scope of profit generation, as it takes time to balance the product launch expenses with its sales. Among the different stages of the PLC, the introduction stage is the most costly stage as it consumes a large amount of investment. Research and development, market testing, initial promotion, etc., are the areas where a huge investment is needed, particularly, in a competitive market.
Figure 2.6: Product Life Cycle
Growth: This is the stage wherein the product gains quick acceptance in the market and starts generating profit. The rapid growth in sales and profit is the key feature Of this growth Stage. As the organisation attains economy of scale in the production, it is able to generate profit from the sales Of the product. This profit margin keeps on increasing as the organisation maintains the economy of scale. This growth enables the organisations to invest more in promotional strategies to get the best from the growth stage.
Maturity: In maturity stage, a level of maturity is reached in a product’s sale as it has now been accepted by most target customers. The profit generated by the product is stabilised or may decline due to enhanced competition. In this stage, the main objective of marketers is to sustain the market share that the product has built up. This stage is the most crucial stage in any product life cycle, and the marketers need to make wise and mature decisions regarding marketing Of the product. For gaining competitive advantage, marketers may rely on product modifications or alterations in the production processes.
Decline: This stage is marked by sales going down and profits decreasing drastically. Here, the product loses its position and makes a way for a new product to enter into the market. In this stage, the market share of the product Starts decreasing, and that is why, it is called decline Stage. This decline could be because of the market being exhausted (i.e., all the consumers who could purchase the product are already in possession of it), or due to the switching of consumers towards a different product. Being unavoidable, this stage may force the organisation to withdraw its product from the market. However, organisations may still generate profit by adopting low-cost production processes and targeting cheaper markets.
Strategic Implications of Different Stages of PLC: Managing the PLC
Strategising is essential for the good health of any firm. A good strategy’ helps in performing various actions and achieving required results which otherwise would not be possible. The PLC as a concept plays a major role in the development of a marketing strategy. Four stages are there in every PLC, i.e., introduction, growth, maturity and decline stage. Each and every stage of the PLC dictates the market condition and its response to the product in terms of volume of sales or profit. The strategy to market a product keeps changing over its life cycle. Generally, for each stage of the PLC, is a corresponding set of marketing tactics:
Introduction Phase: The introduction phase is the phase of launching a product into the market. In organisational terms, characteristics of this phase are huge costs of operations stemming from inefficient levels of production, extended duration of learning, resistance by the established trade to accept a new product in the market. distributors and resellers demanding higher margins with longer credit periods, and need of extensive advenisement. Large amount of investment is needed to counteract this situation. Being new in the market, the product faces the problem of credit as well. Therefore, lot of is required in this stage.
According to P. Kotler, in introduction stage, the management of an organisation may follow any of the following four tactics on the basis of high-low promotion and price:
- Rapid Skimming Strategy: For consumers with low awareness about products, the best Strategy is the rapid skimming strategy of high promotion and high price. This strategy also works best when consumers who are aware about products are willing to pay any amount of money to purchase them. During the launch of a product, marketers Wish to balance the costs incurred in the launch phase of the product by rapid skimming strategy. Rapid skimming strategy also works with products having large size or when the level of competition is severe. Products belonging to the category of non-durables and consumer electronics generally prefer this strategy. This is why, the pricing of consumer electronic items such as computer games, music systems, TV, etc., are initially kept high to cover the high cost of production and then subsequently decreased to sustain the market share.
- Slow Skimming Strategy: The essence of this strategy is that the company has enough time to balance the expenses incurred during the product’s pre-launch period. In this case, the product is launched by the company at a high price but a comparatively lesser amount of money is spent on the promotion. This leads to greater profits being made by the company as the price of the product is high but the marketing cost is low. This occurs when the level of technology used by an organisation is extremely advanced and its competitors have to invest heavily to build up this technology. Moreover, as most of the firms may not have the necessary resources to compete, competition is limited to one or a couple of large firms. Slow skimming strategy is also utilised in the case of limited market size and consumers are aware and ready to buy the product.
- Rapid Penetration Strategy: A company using this strategy charges low prices and spends quite a lot on promotional activities. The rapid penetration strategy can be implemented on the same grounds and conditions Of the environment as that of the rapid skimming Strategy. The sole difference between rapid penetration and rapid skimming strategy is embedded within the long-term objectives of the company. If the long-term objective of the company is to achieve market share and profit maximisation while the market is characterised by severe competition and other entry barriers, in this case, a firm can use this strategy’.
Slow penetration Strategy: In this strategy, a company launches a new product at a comparatively lower price, and spends lesser money on promotional activities. This lower price helps the company to capture the market while the low expenditure on promotion helps the company to earn more profits. In case of conditions like large market, low level of competition, product being familiar in the market or market being price sensitive, this Strategy may be fruitful.
Growth Phase: Having crossed the introductory phase, a product reaches the growth phase. It has to be said that the introductory phase is the most critical phase for a product, as majority of products (more than 95%) are not able to survive in this phase. Nonetheless, the lucky 5% of the products, which make it to the growth phase, encounter more intense competition here. Consumers are offered variety of product types, with different packaging and pricing due to this increased competition. Consequently, the number of customers for products increases, which extend the size of the market. Trade channels now show an acceptance of the product and are willing to stock and deal With it. As more people in the trade are dealing with the product, lowering of prices is commonly noticed
Maturity Phase: Products surviving the intense competition in the growth phase and winning the customers’ approval, reach the maturity phase. This maturity phase is marked by a decrease in the growth rates of profits and sales. A price and promotion war emerges during this stage due to immense competition. The demand for the product multiplies manifold during this phase as an increasing number of customers become interested in the product. Lowering of profit level may also be seen during this phase. To effectively manage the maturity phase, the marketing manager must focus on:
- Improving the product’s quality.
- Increasing the usage among the present customers by exploring new and different utilities of the product.
- Trying to change non-users into users of the product, i.e., forming new buyers.
- Devising effective promotional and advertisement programmes.
Decline Phase: The decline phase is the final stage in the life cycle of a product. Profits and sales continually decrease during this Stage. Technological developments, changes in the tastes and preferences of consumers, development of new products with comparatively low price ranges, and new fashion trends are the major reasons behind the lowering of the sales. If the alternatives available in the market are latest in fashion and are more eye-catching, buyers will probably turn their attention towards them.