1b. The Product Life Cycle

What is the product life cycle

The different stages a product goes through from its conception to its eventual decline in sales

What are the 5 stages in the product life cycle?

• Development

• Introduction

• Growth

• Maturity

• Decline

How do cash flow and marketing strategies change throughout the product life cycle?

In the introduction stage, cash flow is negative due to high costs, while in growth, it improves. Marketing focuses on awareness initially and later shifts to differentiation to maintain market share.

What is development and how does it affect cash flow and marketing strategy?

Focuses on designing and developing the product, with high costs for research, market research, and product testing

• Cash flow is usually negative due to heavy investment in the product without generating any revenue

• The marketing strategy → create awareness and generate interest in the product

What is introduction and how does it affect cash flow and marketing strategy?

The stage begins when the product is launched. There are slow sales growth as the product is still new and unknown to most consumers

• Cash flow is usually negative as the business usually incurs high costs for promotion, advertising and distribution

• Marketing efforts → creating awareness and generating interest in the product

What is growth and how does it affect cash flow and marketing strategy?

The product enters this stage when sales being to increase rapidly. The business focus shifts to building market share and increasing production to meet the growing demand

• Cash flow usually turns positive during this stage as sales revenue increases and costs are spread out over a larger volume of production

• The marketing strategy → differentiate the product from competitors and build brand loyalty

What is maturity and how does it affect cash flow and marketing strategy?

Characterised by slowing sales growth as the product reaches its peak in terms of market penetration

• Cash flow is usually positive during this stage as sales revenue continues to come in and costs are reduced through economies of scale (when unit costs fall as businesses expand their scale of production) and efficient production processes

• The marketing strategy → maintain market share and increase profitability by cutting costs and finding new markets

What is decline and how does it affect cash flow and marketing strategy?

Starts when sales begin to decline as the product becomes obsolete or is replaced by newer products. The business focus shifts to managing the product’s decline and reducing costs

• Cash flow usually turns negative as sales revenue declines and costs associated with the product’s decline increases

• The marketing strategy → discontinuing the product, reducing its price to clear inventory, or finding new uses for the product

What are extension strategies to the product life cycle?

The technique used by businesses to extend the life of a product beyond its natural life cycle. These strategies are designed to boost sales and maintain profitability for a product that has reached the decline stage of its life cycle

What are the 2 types of extension strategies?

• Product-related extension strategies

• Promotion-related extension strategies 

What are product-related extension strategies?

Involves changing or modifying the product to make it more appealing to customers and extend its life cycle and can be achieved in one of three ways:

• Product improvements - Samsung releases new versions of its galaxy smartphone every year with upgraded features and improvements to the previous model

• Line extensions - Coca-Cola introduced diet coke and coke zero as line extensions of its og Coca-Cola

• Repositioning - In response to growing concerns about obesity and unhealthy fast food, McDonalds repositioned itself by introducing healthier menu items

What are promotion-related extension strategies?

Involves changing the marketing and promotion of the product to extend its life cycle and could include one or more of the following changes:

• Changes to advertising - Kellogg’s continues to recreate adverts for its cornflakes cereal which has been around since 1906

• Price promotions - ‘Back to School’ sales, retailers like Apple and Walmart offer significant discounts on school supplies, and clothing during the late summer months. This helps boost sales by targeting students, parents, and teachers who are preparing for the new school year

• Sales promotion - many coffee shops offer a loyalty problem where customers can earn a free drink for every six consumed