PRODUCT LIFE CYCLE

A company which introduces a new product naturally hopes that the product will contribute to the profits and provide consumer satisfaction for a long period of time. This however, does not always happen in practice. So, progressive organisations try to remain aware of what is happening throughout the life of the product in terms of the sales and the resultant profits.

 

The Introduction Stage  

Let us start thinking from the very beginning about what happens when a new product is introduced in the market.

Figure I gives three optimistic alternatives as to the likely sales trend. If the product is well-designed, the sales would increase slowly but would shoot up after some time as in (b). Rarely would there be a case where they would shoot up as in (c). Poorly designed product may experience a slow take off as shown in (a). Thus (b) represents a suitable sales trend for a new product. This stage is called the `introduction<sup>'</sup> or `innovation' stage in the life cycle of a product.  

Since the product has been just introduced and it is natural to expect that it will take some time before the sales pick up. There are some prerequisites for that too. The product must be brought to the notice of the customer. It must be available at the distribution outlets and all this takes some time. Therefore, a likely picture of the sales trend in this stage would be (b) as given in Figure I.

In the introductory stage, there is likely to be no profits or more likely a loss. This loss may continue for some time depending on the market factors. It is because, at this stage, considerable amount of funds are being devoted to promotional expenses with a view to generate sales while the volume of the sales is low (as already seen in the Figure I). Thus in the beginning, there is likely to be a loss and later on, as the sales grow, the profit might accrue. 

 

The Growth Stage

In case the product launched is successful, the sales must start picking up or rise more rapidly. The next stage is then reached which is known as the `growth stage'. Here the sales would climb up fast and profit picture will also improve considerably. This is because the cost of distribution and promotion is now spread over a larger volume of sales. As the volume of production is increased, the manufacturing cost per unit tends to decline. Thus, from the point of view of product strategy, this is a very critical stage.

 

Figure-II : The Product Life Cycle

Figure II above shows the `product life cycle^' and the different stages. 

The Maturity Stage

It is too optimistic to think that sales will keep shooting up. At this stage, it is more likely that the competitors become more active. In case your product is a novel one, by now competition would have come out with a similar product in the market to compete with yours. Therefore, the sales are likely to be pushed downwards by the competitors while your promotional efforts would have to be increased to try and sustain the sales. Thus the sales reach a plateau. This is called the ‘maturity stage' or ‘saturation'. At this point it is difficult to push sales up. With regard to the ‘profit' picture, the profits are likely to stabilise or start declining as more promotional effort has to be made now in order to meet competition. Unless of course, you have the largest market share with your product and it needs no extra push in the market.  

The Decline or Obsolescence Stage

Thereafter the sales are likely to decline and the product could reach the ‘obsolescence' stage. Steps should be taken to prevent this obsolescence and avoid the decline. This decline that generally follows could be due to several reasons such as consumer changes and tastes, improvement in technology and introduction of better substitutes. This is the stage where the profits drop rapidly and ultimately the last stage emerges. Retaining such a profit after this stage may be risky, and certainly not profitable to the organisation.

MARKETING MIX AT DIFFERENT STAGES

Let us now discuss the marketing mix strategies at different stages in the product life cycle :

At the introductory stage, we have to increase sales and thus spend a lot on physical distribution and promotion. This is because we have to create, an awareness and acceptance of our product. We must also increase its availability. Very often in India, it is noticed that a product is advertised but is not available at the distribution outlets. This is a waste of promotional expenses. We must make optimum use of the available resources of the organisation. Thus distribution should be arranged before the product is launched.

In any case, in these two areas substantial amounts would have to be spent. We have to also counter the reluctance of customers to change their established patterns and make them purchase our product, particularly if it is of a novel nature. As against this, if it is a novel one, people may even buy it out of sheer ‘curiosity'.

Next in the growth stage when the sales shoot up and we are satisfied with the profit generated by the product, competitors will now enter the market and perhaps offer new product features. Therefore, we may have to think of improving our product so that we do not reach the ultimate ‘decline' stage too quickly. The promotional expenditure is maintained at the same level or is raised slightly in order to meet competition.

We now come to the next stage called the maturity stage. This stage generally lasts longer than the other stages and poses problems for the management in maintaining the sales level. Actually, there is a slowdown in the growth rate of the sales in case of such matured products. The decline can be arrested by improvements in the product and promotion. We should, however, at this time seriously think in terms of a new product, mix, that is, the elimination or redesign of the current product within the near future.

Finally, the decline stage catches up. The decline' may be slow or rapid. It may be due to better substitute products, better competition, technological advances with which we have not kept up and several other reasons. Such a product now proves expensive for the organisation. One must, therefore, be willing to consider the elimination of such marginal or unprofitable products. Eventually, the last weapon is to reduce the price. This is dangerous because this is a very time when extra promotional effort is required to be put in to prop up the product's sales. Reducing the price may soon land the company in a loss situation. 

OPTIONS IN DECLINE STAGE

Having considered the product life cycle and the inevitability of product decline, the question which comes to one's mind is what should be done to avoid or postpone this decline.

Consider some of the following points to avoid decline,

1) Improve product quality

2) Add new product features resulting in extra benefits

3) Penetrate new market segments

4) Give incentives to distribution channels

5) Expand the number of your distribution channels

6) Improve advertising and sales effort.  

Perhaps, the answer lies in the word ‘innovation'. That is why it is sometimes said that innovation is the life-blood of marketing. Innovation can be in any of the 4 Ps of ^'marketing. In connection with the product, it would mean quality improvement or improvement in features (e.g. introducing piano key type controls for table fans) or even style improvements like in case of clothes where collars are changed from time to time because of the fashion life cycle. Ultimately a time may come when the product will have to be removed from the product mix.

In practice, there is often a reluctance to do this, particularly from the senior members in the management hierarchy, who may have got very much attached to such products. This emotional approach has to be avoided while taking final decision.

The product life cycle concept, therefore, emphasises that there should be a periodical review of the products. The profitability and financial viability of the product must be assessed constantly. Products which are difficult to sell affect even the morale of the salesmen, as well as the distribution outlets. The only excuse for retaining such products is when the unprofitable product is required to complete the product line to enable distributors to meet competition. Unless there is some strong reason, unprofitable products should be removed from the product mix of the organisation.