Product life cycle (subtopic 2.1.2)

5 stages simplified

1. Research and Development (R&D)

2. Introduction

3. Growth

4. Maturity

5. Decline

Product Life Cycle

Theoretical model that tracks and predicts the sales performance and revenue of a product overtime. From its initial design to its removal from the market

Research and Development (R&D)

1. Sales are 0

2. Costs are extremely high (market research, testing prototypes

3. Cash flow negative

4. No profit

Introduction

1. Sales are low and slow growing (low consumer awareness)

2. Costs are high

3. Cash flow usually negative

Growth (3)

1. Sales growing rapidly at an accelerating rate

2. Unit costs fall significantly due to economies of scale

3. Cash flow becomes positive, as product becomes profitable

Maturity (4)

1. Sales peak growth slow down, or levels off (plateaus)

2. Market conditions are highly saturated, with intense competition with rivals

3. Cash flow is maximised and positive

Decline (5)

1. Sales and revenue fall steadily

2. 3 main causes:

3. Changing consumer preferences

4. Superior replacement from rivals

5. Product loses value, because of new technology (creative destruction)

Extension strategy

1. Techniques used by a firm to prolong the life of a product, and delay decline phase

2. It must be done during the maturity stage, before sales start to fail

4 types of extension strategies, involving product adjustment

1. Updating product (e,g new feature or software updates)

2. Product improvements (efficiency or quality)

3. Extending the range (introducing new types like new flavours sizes or editions)

4. Repackaging, freshening up the visual brand identity

4 Type of extension strategies involving promotion/place

1. Finding new uses for the existing product

2. Targeting new markets

3. Rebranding and new adverting campaigns

4. Encouraging more frequent use, via incentives

Strategic uses of PLC model graph

1. Sales forecasting, predicting future cash flows and revenues

2. Portfolios management, taking revenue from a successful product, and investing that revenue into a different product in R&D stage

3. Marketing mix targeting, adapting to the 4 Ps (product, price, place, promotion) to match the changing competitive pressures in each stage.

Limitations of PLC Model

1. Not a guarantee, some products fail in introduction stage and never grow

2. Variable lengths, duration of stages vary for each product

3. Some managers might assume a product might enter decline stage, and stops funding that product.