The product life cycle in theory and practice

Agenda
To introduce the concept of the product life cycle (PLC). To explain its use as an analytical framework. To identify criticisms of the PLC concept. To suggest how the PLC may be operationalized and put into practice. To present deviant variations of the classic PLC.

The product life cycle (PLC) is

A generalized model of the sales trend for a product class or category over a period of time, and of related changes in competitive behaviour.
(Buzzell)

Most alert and thoughtful marketing executives are by now familiar with the concept of the product life cycle. Even a handful of uniquely cosmopolitan and up-to-date corporate presidents have familiarized themselves with this tantalizing concept in any strategic way whatever, and pitifully few who used it in any kind of tactical way. It has remained as have so many fascinating theories in economics, physics and sex a remarkably durable but almost totally unemployed and seemingly unemployable piece of professional baggage where presence in the rhetoric of professional discussion adds a much coveted but apparently unattainable legitimacy to the idea that marketing management is somehow a profession. There is, furthermore, a persistent feeling that the life cycle concept adds luster and believability to the insistent claim in certain circles that marketing is close to being some sort of science.
Ted Levitt, EXPLOIT the Product Life Cycle, Harvard Business Review, 1965).

The concept of the product life cycle is today about the stage that the Copernican view of the universe was 300 years ago: a lot of people know about it, but hardly anybody seemed to use it in any effective or productive way.
(Levitt)

40 years on little has changed!

The product life cycle

Quantity
Maturity Growth Introduction Decline

Time

The stretched product life cycle

contains seven stages:
Gestation or new product development. Launch or introduction. Growth Maturity Saturation Decline Elimination

Graphically we may represent this as follows

Maturity Quantity

Saturation Decline

Growth Gestation Launch Time Elimination

The concept of the PLC is firmly rooted in the concepts of the biological life cycle and of evolution.

It reflects 4 underlying processes. Competition Substitution or displacement The survival of the fittest The inevitability of change

It also reflects a number of what may be considered useful generalizations if not eternal truths, namely:
Needs are inborn and enduring Wants are learned and ephemeral The great majority of actions are motivated by self-interest The act of consumption changes the customer

Given this pedigree why has the PLC concept not become the accepted wisdom and universally endorsed by all?

Because most people mistakenly try to use it as a predictive device or forecasting tool. Its real value is the insight it provides and its implications unless managerial intervention can moderate or modify the process.

When a life cycle reaches a limit of growth three basic options exist:
A way round the limit cannot be found and the process goes into decline. An equilibrium is established and the life cycle is stretched or extended. The limit is broken and a new growth phase is initiated.

The biological life cycle.

Renewed growth

Limit Turbulence Growth Decline Time

Extension

Characteristics of life cycle stages.

Product life-cycle Characteristics Sales Profits Cash flow Customers Competitors Key actions Strategy Marketing costs Marketing emphasis Pricing Distribution Product Introduction Growth Maturity Decline

Low Negligible Negative Early adopters Few Expand market High Product awareness High Patchy Basic

Fast Peak levels Moderate Mass market Growing Market penetration High (declining%) Brand preference

Slow to decline Begin to decline High Mass market Many me too rivals Defend share Falling Brand loyalty

Declining Declining to zero Low Laggards Taking market Productivity Low Image maintenance Rising Selective Rationalize

Maintain Maintain/increase Intensive Intensive Improved Broaden position Product development Re-segment Brand life Generic life

The conceptual arguments against the PLC are:

Products are not living things, hence the biological metaphor is entirely misleading. The life cycle of a product is the dependent variable, being a function of the way in which the product is managed over time. It is certainly not an independent variable. The product life cycle cannot be valid for product class, product form and for brands indeed, an important function of a brand name is to create a franchise that has value over time, permitting changes to take place in the product formulation. Trying to fit product life cycle curves into empirical sales data is a sterile exercise in taxonomy.

The main operative arguments against the PLC include:

The four phases or states in the life cycle are not clearly definable. It is impossible to determine at any moment in time exactly where a product is in its life cycle hence: The concept cannot be used as a planning tool. There is evidence that companies who have tried to use the product life cycle as a planning tool have made costly errors and passed up promising opportunities.

In large measure disagreements about the existence of PLCs arise from lack of definition of what, precisely, is a product. Doyle (1999) distinguishes 6 possible levels of definition.

Table 4.2

Doyles product life cycle factors

Source: Doyle (1999)

But, even if everyone accepted Doyles definitions, the problem remains. Managers are seduced by the consistency of the S-shaped logistic growth curve into the expectation that it can be converted into a precise formula which will predict accurately the behaviour of individual brands in a market.

Product Strategy and Management

20

The persistent belief is ingenuous. The PLC is a post-facto generalisation about observed outcomes for successful innovations. It cannot tell you in advance which innovation will achieve this status.

The PLC is a tool which encourages strategic insight, policy formulation and long term strategic planning. It is not a tactical device.

Products position on the life cycle

Figure 4.4

Determining a products position on the life cycle

source: Scheuing, 1974

Linear vs exponential sales forecasts

Figure 4.5

Linear vs exponential sales forecasts

Deviant cases fads and fashions

Figure 4.6

The classic fashion-good PLC

Figure 4.7

The fad PLC

Managing growth

Agenda
Factors inhibiting growth Factors encouraging take-off

Sustaining differentiation
Meeting competition

Categories of innovation
Known need the product the market is waiting for

Customer active or need pull products specified by customers

Supplier active or technology push the product we think you want

Sources of resistance:
Technological Infrastructural Behavioural

Competitive response:
Improved products/ new standards Lower prices Different channels (place) Superior promotion

Managing maturity

Agenda
The need for planning

Competitive reactions
Alternative strategies:

Offensive Defensive Recycle Stretch

Maintaining competitiveness

It is this idea of planning in advance of the actual launching of a new product to take specific actions later in its life cycle actions designed to sustain its growth and profitability which appears to have great potential as an instrument of long-term product strategy.
(Levitt)

Once a new product has become established in a market competitors will seek to emulate it and climb on the bandwagon of a rapidly growing market. In turn this increase in supply will accelerate the take up of the new thing, especially if some of the competitors are switching their efforts from producing the object for which the innovation is a substitute.

In the rapid growth phase market leaders will seek to stay ahead of the game through further improvements while less innovative firms try to win market share by discounting, offering lower prices for direct sale, and so on.

As the market approaches saturation rivalry and competition will intensify and the less efficient firms will be forced out of the market.

As growth slows and the product enters maturity, profit margins will begin to decline because of:
Over-capacity and intensive competition. Market leaders experiencing greater pressure from smaller competitors. Strong increase in research and development (R&D) to improve the product. Cost economies being used up. Decline in product distinctiveness. Less push from intermediaries as sales stagnate. Early adopters beginning to look for new substitutes.

Once competition has stabilized in the mature phase of the life cycle margins may improve as firms have to invest less in development and promotion and the surviving products assume the status of cash cows.

Surviving firms will seek to prolong the mature phase using one of four basic strategies:
1. An offensive or take-off strategy

2. A defensive strategy
3. A recycle strategy 4. A stretching and harvesting strategy.

Offensive strategies include:

Remerchandizing New use Reformulation Product improvement Market extension Product line extension

A defensive strategy usually involves incentives to intermediaries and end users (price cuts, promotions etc.) which reinforce customer loyalty and make the market less attractive to new entrants.

Recycling strategies usually involve attempts to reposition the product, usually with a new market segment, so as to initiate a new growth cycle.

Stretching and harvesting strategies usually involve some form of reformulation or product line extension e.g. Arm and Hammer.

In mature markets customer expectations change through growing experience. To deal with this four strategies have been suggested:
Strengthen account management practices. Augment the product. Improve customer service. Lower prices.

Product elimination

Agenda
The importance of product deletion decisions Models of product deletion Product deletion triggers

Decision criteria for selecting deletion candidates

Revitalization

Strategies for eliminating deletion candidates

Despite the logic of the PLC many firms lack a strategy for managing products in the decline stage. While it may be possible to stretch a product, or re-position it, and so extend its life cycle, ultimately it will become a drain on resources and so should be eliminated. This decision should be planned for, and not forced on the firm as the result of a crisis when it is least likely to be able to afford the costs of elimination and the costs of launching a replacement.

Symptoms of decline:
Fewer sales resulting in:
short production runs and loss of scale economies higher handling costs for small orders inventory holding costs declining contribution

Marketing problems:
disproportionate effort needed to push sales problems of forecasting

Managerial problems:
diverts attention from more profitable options attracts adverse publicity

Rational reasons for not deleting products:

Possibility of revitalization Complements other products in the portfolio In demand from key accounts Making a positive contribution to overheads

Less rational reasons:

Absence of adequate financial data Senior managements pet a source of past success Expectation of an up-turn but no evidence Associated with failure

The same attention should be given to evaluating candidates for deletion as to each of the stages in the new product development process. Preliminary screening should consider:
Sales trend Price trend Profitability Composition of the product portfolio Importance to key customers Amount of management time needed

Weak products identified by screening should then be subjected to formal evaluation using some form of factor rating table.

Main steps in the product deletion decision

Figure 17.3

Main steps in the product deletion decision

Triggers in product deletion

A study by Hart (1987) identified 17 triggers associated with the decision to delete a product. These were classified as falling into four categories, through:
1. Poor performance 2. Strategic factors 3. Unforeseen changes in operational matters 4. Events external to the firm

Criteria for evaluating deletion candidates:

1.Sales related:
Past sales volume Products percentage of total sales Future sales volume

2.Market related:
Market growth Market share Position on product life cycle (PLC) curve Customer acceptance Competitive activity

Criteria for evaluating deletion candidates: (Continued)

3. Profit related: Contribution Price trends Sales generated versus resources used

4. Operating criteria: Inventory levels Service levels Batch sizes Operational problems

Revitalization
A product may be revitalized through a change in marketing strategy withdrawing from declining markets, entering new markets, outsourcing or by modifying the basic elements of the marketing mix:
Product Price Promotion Distribution

Evaluating deletion candidates

Resource related factors:
Availability of a new product Effect on the elimination of recovery of overheads Reallocation of resources to other opportunities Effect of the deletion on fixed capital Interchangeability of materials, parts, packaging Effect on capacity utilisation Reallocation of executive and selling time Effect on working capital, e.g. stock Effect on employment prospects on the workforce

Evaluating deletion candidates (Continued)

Finance related factors:
Effect on overall sales volume Effect on sales and profitability of other products Effect on contribution

External factors:
Products market potential Effect on distribution e.g. loss of shelf space Effect on a full range policy Existence of substitutes to satisfy customers Effect on company image Competitive reaction to withdrawal Customer relations

Implementation strategies:
1. Drop immediately 2. Phase out immediately 3. Run out Harvest 4. Sell out 5. Drop and re-introduce as special

Implementation factors:
Stock on hand Residual demand Effect on middlemen and customers Availability of a new product Seasonality Salvage value of machinery and equipment Time required to shift resources Status of replacement parts

Reprise product strategy and management

The role of business is to create added value through the optimum use of resources physical and human, tangible and intangible over which it can exercise control.

Added value is created when the parties to an exchange process both believe that they will increase their satisfaction by entering into the exchange. It is a win-win situation.

In a commercial context management of the exchange process is the responsibility of the marketing function. Hence, marketing is concerned with the creation and maintenance of mutually satisfying exchange relationships.

The focus of exchange is the objects which are transferred by one party to the other. In the case of the seller these are products or services. In the case of the buyer they may be other products or services (barter) or a store of value (money).

It follows that product strategy and management are at the very heart of business strategy and planning and the ultimate source of a sustainable competitive advantage, corporate survival and success.

Traditionally, competition emphasized the supply of objectively superior goods at a lower price than that available from competing suppliers. This emphasis on product standardization and cost leadership inevitably led to mass production, mass markets and mass consumption. It ignored the logic of the downward sloping demand curve that different consumers have different preferences.

Downward sloping demand curves suggest the existence of an alternative strategy product differentiation.

As technological innovation and productivity continue to accelerate population growth in the advanced economies has stabilized. This has led to intense competition within these economies and the search for new markets.

In the global market information technology ensures that information diffuses rapidly and product life cycles become shorter. While new product development (NPD) is a necessary condition for survival it is no longer sufficient and sustainable competitive advantage is increasingly to be found in learning organizations and the skills and competences of their workforce.

Knowledge is the only resource which increases with use.

But, what is well known is seldom known well.

A learning hierarchy:
Data Information Intelligence Knowledge:
Explicit Implicit

Wisdom

To avoid overload one must develop techniques for organizing and evaluating data. Analytical frameworks provide structure in this process.
The curves: The boxes:
Demand Product life cycle Experience Ansoff Boston Directional policy

Needs are limited and enduring. Wants are infinite and ephemeral. A man goes into a hardware store for an 8mm drill he needs an 8mm hole.

Innovation is the source of progress and involves the discovery and application of new ways of satisfying needs which will then be substituted for the old.

Choice is a complex decision in which the decision-maker proceeds from a state of unawareness to awareness to attention to interest to desire to action.

The process is difficult to initiate due to resistance to change and habit which result in selective attention. Further all stimuli are subject to selective perception which may distort them. The process may also be discontinued at any time.

While a standardized, low cost product is better than no product at all, individual preferences vary and most buyers would be willing to pay more for something which represents added value for them.

To understand precisely what customers want, you must listen to the voice of the market and maintain a dialogue with all those involved in the creation and consumption of a product through a process of continuous (market) research.

Market research enables you to define market opportunities, segment markets, select those that best match with your organizations skills and resources and position yourself effectively against competition.

Successful new product development is best achieved by a structured process comprising:

Idea generation and screening Concept testing Business analysis Product development and testing Commercialization

The adoption of a new product is determined by its:

Relative advantage Compatibility Complexity Communicability Divisibility

Two basic strategies are available to the innovator market penetration and skimming. The choice between them will be determined by the size and resources of the innovator, the novelty of the innovation and the extent to which that novelty may be defended.

As the product moves through its life cycle the marketing mix will need to be adjusted to changing conditions rapid growth, maturity, stagnation and decline.

The secret of competitive success is:

Build a better product at the same price. Build a similar product at a lower price. Develop a customer franchise through differentiation

Dont confuse trappings for substance. There are no magic bullets. Implementation is everything.