Product Life Cycle
Product life cycle is the phenomena of the product being manufactured, development, customized, marketed etc. in short; it retains everything that a product has to go through in the market. When we say that a product has a life cycle, we are actualizing some facts:
Products, as everything else, have a limited life.
A product passes through different known stages, and certain stages prove to be successful for the product, and come as an opportunity; while others may involve being a threat to the product.
The profitability of the product varies in these different stages. (It may rise or fall, depending in various factors, such as: quality, value that is attached to the product etc.)
Products require different strategies in its whole life cycle in order to survive in the market and to also withstand the demand of the consumers.
The life cycle of any product is mostly bell-shaped which gives the idea that it can be divided into four different stages i-e Introduction, Growth, Maturity, Decline, and the development stage of the product is not counted as a portion of the life cycle because it is not yet specified as a whole product i-e finished product.
Sales volume tends to be slow at this first stage of the PLC. We are taking an ideal situation, i-e no market diversion or competition is at stake. But even then, the sales of certain products tends to be slower than the normal products, we are talking about expensive products here such as; expensive High-Definition innovative Televisions, new technology Gadgets etc. are usually affected by factors like potential buyers or product complexity. It would be safe to think that the buyers will buy it at a lesser price so why not give the product an inexpensive price tag. The key item here is the cost regarding the Research & Development of the product that has to be recovered, and the reason to charge higher for new products in order to skim the cream of the market is because of the product being out, and the company firm has to recover its costs before a competitive has the chance of making the same product at a lesser price tag.
Profits are usually low at this first stage. The firm usually pre-plans some steps before launching a new product in the market i-e; when to enter the market, because entering a new market as a first may be rewarding, but the risk level is also that much high. It has been studied that market pioneers have the most of the advantage at this particular stage; many firms hold their position in this stage because of their image and market dominance (also market share). The brand image plays a vital role in this stage, consumers usually go for the brand image of a particular product because it also reflects the efforts of the previous products of the same brand that were satisfactory to the users.
This stage, as the name implies, is distinct by the rapid increase in the sales volume. Potential customers and early adopters of the product are the ones that make the rise successful, and additionally, more and more consumers start buying the product. This stage also initiates the need for maintaining the promotional expenses of the company. It should also be watched that at this stage new entrants are more than happy to come along as they see the opportunity of market growth. They will be a good competition because they might bring new product features and expand their distribution. So, the firm at this stage has to keep up in order to maintain the profit. The company has to make some vital decisions in this stage as well, the current profit that is earned in this stage is great but usually the company will try to improve its product, add variety to it by making it in different shapes and sizes, expanding the distribution and promoting it as well.
There are several strategies that companies maintain in order to maintain the market growth, i-e; improving the quality of the product, adding new features, improving the style, adding new models, entering new market segments, distribution coverage expanded (enters new distribution channels), lower prices in order to attract price-sensitive buyers, and the advertising is more product preferential rather than product awareness at this stage. These strategies help the firm gain a competitive position in the market.
The maturity stage, the growth rate of sales will decline and the product will enter a stage where is will be mostly decaying. The maturity stage has 3 phases, and as such it has a longer period to last than the other stages because this stage is where the managers try their best to not simply let go of the product and squeeze every little profit from the product sales. The first phase is the growth in the maturity stage, then the stability phase and then finally the decline phase. There are no new distribution channels that could be tapped and so the first phase describes the decline of the rate of sales growth. In the second phase, market saturation is seen and sales roll-out on per capita basis. The product is already in the market in a great number, and most potential buyers have used the product, there is only room for more regarding the population growth and/or replacement demand.
Since at this stage the sales rate has slowed down, which leads the market into a tough competition, usually making the competitors to find niches in the market. At this stage, usually dominating the market are a few giant firms that have diversified approach regarding their product line, and for that purpose they can make more profit regardless of their profit on the new market. So, these giants increase the volume of the sales by lowering the costs as much as to cover the variable costs as fixed costs have already been recovered. Usually these are the factors that work in this stage: Price, Distribution, Advertising, Sales Promotion, Personal Selling, Services etc. But this is also a fact that managers also tend to think in accord to the environment and the situation, i-e; if more advertising is needed or more promotional activities are going to help boost the sales. Such questions are very important in this stage of a PLC.
This is the final stage for the PLC in which the sale of the product starts declining. There are a number of factors that include, shift in consumer tastes, technological advances, and/or domestic and international competition, which usually leads to overcapacity which in turn switches the competition to price cutting and profit erosion. The decline stage may be fast or slow, depending on the traditional approach towards a buyer’s need of that product. Since the sales as well as profits are declining, many firms withdraw from the market due to the risk involved. The remaining usually reduces the number of products that they produce, according to the market need which might be greater than the number produced. At this stage, according to one study, a firm has five strategies to choose from; increasing the firm’s investment in order to dominate the market, maintaining the firm’s investment till the uncertainty levels down, decreasing the investment selectively in order to drop unprofitable customer groups, harvesting the company’s investment, divesting the business quickly by disposing of its assets.
Even at the final stage, a firm has to make many decisions regarding the product, because dropping a product means that the firm is not going to carry out any further production of that product, and if the uncertainty of the market should decrease and there should be a demand for the product than the company’s investment would not have been much profitable.
PLC concept is usually used as a forecasting tool; it is also very useful to determine the product and market dynamics. It is also used for planning and controlling. PLC has usually been criticized mainly on its variability in shape and duration for different products. The critics also include that the PLC is the result of marketing strategies than an inevitable course that the product sales must follow