A product passes through certain distinct stages during its life & this is called the Product Life Cycle (PLC). The PLC is normally presented as a sales curve spanning the products course from introduction to exit. The utility of the PLC concept lies in the fact that each stage in the cycle is characterized by a typical market behavior & consequently, each stage lends itself to the application of certain specific marketing strategy. Understanding the PLC concept & managing it effectively can help in prolonging the profitable phases of a products lifespan.
The Four Distinct Stages in PLC
A typical product passes through 4 distinct stages during the course of its life:
Market Pioneering Stage
Market Growth Stage Market Maturity Stage AND Market Decline Stage
Market Pioneering Stage
During the pioneering stage, the product is in its introductory stage. At this stage, there may not be a ready market for the product. Sales are low; the product undergoes teething troubles; profits seem a remote possibility; demand has to be created & developed; and customers have to be prompted to try out the product. Obviously, this stage poses several problems for the marketer. The complexities of the problems & the duration of the stage depend upon the nature of the product, its price, its technological newness & the consumers view of the product. One of the crucial decisions to be taken in this stage is the pricing strategy to be adopted.
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16.2 GROWTH, MATURITY & DECLINE STAGES THE GROWTH STAGE During this stage, demand for the product increases & the size of the market grows. The pioneers sales & profits go up. But by the time the pioneer settles down with his product, competitors may enter the scene with similar or slightly improved versions. The pioneer may then have to alter his marketing strategies. He has to stay ahead of his competitors & persuade his customers to go for his brand. He cannot dictate price to the customer. If he had resorted to skimming strategy at the time of pioneering stage, it is now time for him to reconsider his pricing strategy.
THE MATURITY STAGE
Here demand tends to reach a saturation point. And, there is enough supply from several competing sources. Dealers may dictate terms to the various competing firms. Price competition becomes intense & the pioneer tries to distinguish his brand by subtle product differentiation & exploits the brand loyalty he has built up. The pioneer feels compelled to communicate directly with the consumers, since by now, dealers have become multi-brand dealers.
THE DECLINE STAGE
In the declining stage, sales begin to fall. The demand for the product shrinks, probably due to new& functionally advanced products becoming available in the market or the market becoming apathetic to the product. In any case, prices & margins get depressed; total sales & profits diminish. Some of the firms at this stage may try to link up the sales of theses products with some other premium products they have developed & thus try to stretch the life of the declining product. 2
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16.3 ROLE OF PLC IN MARKETING STRATEGY The duration of each phase of the PLC will depend on the product, its newness, its functions & the marketing strategy of the firm. The firms success in reaching out to the innovators, early adopters etc., will depend on the duration of each PLC stage. Innovation diffusion, new product adoption & PLC are closely interrelated concepts. With appropriate marketing strategies, the firm can exploit this linkage & manipulate various stages in the PLC to its advantage. And therefore the marketing strategy plays an important role. Put differently, the utility of the PLC arises out of the following facts: A product has to necessarily pass through certain stages during its life What happens to it in each stage depends on market behavior By manipulating market behavior, the stages of the PLC can also be manipulated PLC concept helps marketing strategy formulation Facilitates pre-planning the product launch Facilitates prolonging the profitable phase Facilitates investment decisions on products Facilitates choice of appropriate entry strategy Facilitates choice of the right time to exit Provides useful clues for managing customers Actually the PLC concept can be of help in different ways in pre-
planning the new product launch; in prolonging the profitable life phase of an existing product; in reacting to competition in a planned way; in deciding the long-term investment in products. 3
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16.4 ROLE OF PLC IN MARKETING STRATEGY Facilitates pre-planning the product launch Many firms are seen to slip in pre-planning new product launch. As a result, they face butter experience of suddenly entering the market with a new product & struggling with it, not knowing how to handle the problems peculiar to that stage. This does not mean that with PLC, the actual phase & events in a products lifecycle can be exactly predicted & appropriate, foolproof plans prepared in advance. The actual position will usually vary from what is projected. But elaborate pre-planning does render the marketing man equipped to charter the course of the product. It provides him valuable lead-time. He can use the insights from the exercise in understanding the life cycle of his product.
Facilitates prolonging the profitable phase
Normally, the following are the strategic routes available to a firm for extending the profitable stages of the lifecycle of the product:
Finding out new users for the product
Finding out new uses for the product Popularizing more frequent use of the product Making the product more distinctive to the consumers Adding real &/or psychological value to the product
Facilitates investment decisions on products
In a firms long-term planning too, the PLC can be of help. In modern days, product portfolio planning is becoming a crucial subject. PLC is a tool that can help anticipate product successes. This, in turn, will help investment decisions on the product; the firm can assign investment to the right products & avoid committing heavy resources on wrong products. 4
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16.5 ROLE OF PLC IN MARKETING STRATEGY Facilitates choice of the right time to exit The PLC concept can even help in deciding the right time to exit from a market & minimize the damages & costs of exit.
PLC can be a useful tool in managing customers
Customer experience with the company changes as the product passes through its PLC. As such, the PLC concept can be a useful tool in managing customers. As a product moves through the various phases of its life cycle, the consumer also moves on the path of his experience in respect of the product. Though this change is reflected in the shifts in the demand for the product through the PLC stages, the marketer will gain a great deal if he knows what actually happens to the consumer during this process. The change in the experience level of the consumer has some implication for the company-consumer relationship & consequently, knowledge of this change will help effective management of customers. Buyers of various products, especially hi-tech business products, evolve from a stage of inexperienced generalists to experienced specialists. As the experience level of the customers change, the benefits they seek from the company also keep changing. Companies, which can sense & anticipate this customer experience factor, can be ready with suitable strategies to keep the customers with them. In India, the phenomenon of product evolution & customer experience change has been taking place for the past few years in the computer business. The pioneering stage of the PLC was over some years ago. The product is in its early growth stage & dozens of manufacturers are already there with competing offers. The buyers, who were inexperienced generalists a few years back, have become experienced specialists now. The seller has to understand when & how such transitions take place in the experience level of the customer, as his product moves along its lifecycle. 5
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16.6 ROLE OF PLC IN MARKETING STRATEGY Linkage between PLC concept & entry strategy As a new product travels through its life, different firms join the market with their respective versions at different stages. Basically, 4 distinct entry postures are possible for a firm seeking entry into the market: 1. Entry as an INNOVATOR: Innovators should have large resources to innovate & introduce new products. They must have the capacity to absorb the cost of product failures. Only the firms having all relevant strengths can afford to take the position of an innovator. 2. Entry as FOLLOWER: Those who join the life cycle, as followers in the early growth stage of the product have to be good market watchers. They must closely watch the innovators programs & if their market intelligence show that a product introduced by the innovator is picking up well, they should quickly join in with their version. They need not invest heavily in R&D because they essentially copy the innovator. 3. Entry as SEGMENTOR: The segmentors enter with their brands still later, i.e. when the product enters the late growth stage. They identify certain market segments with less competition & concentrate on them; they bring in products that are appropriately modified to suit the selected segments. 4. Entry as ME-TOO: The me-too firms enter their versions at a time the product enters the maturity stage of its life cycle. These firms do not need much R&D efforts. But, they need a strong marketing organization to compete with the already established competitors. They normally compete on price, keeping their costs as low as possible. Production cost is their main concern & all their decisions, including those on product features & design, are dominated by the concern to reduce production cost.
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16.7 OPERATION OF PLC PLC usually operates at 3 levels: The PRODUCT level The product SUB-CATEGORY level AND The BRAND level To describe the above with an example, let us carry on with the same computer example. Computer as a product category is in the growth stage in its life cycle. The product category involves all configurations of computers super computers, main frames, micro/mini & PCs. PC is a product sub-category within computers. This sub-category is evolving in a particular pattern within the overall category of computers. Within the sub-category of PCs, HP is one brand, Wipro is another & Dell is a third. At the brand level, HP, Wipro & Dell are evolving on their own paths. Thus, the product category of computers has a life cycle of its own; the product sub-category of PCs has a life cycle of its own & the Wipro brand of PC has a life cycle of its own. In other words, when Wipro attempts to project the life cycle of its PC, it cannot make a realistic analysis unless it studies the life cycle of the product sub-category, PCs, as a whole. Wipros life cycle at the brand level cannot evolve totally independent of the other brands of PCs in the market. The strategies put forward by the competing brands & the reaction of the market to those strategies will certainly impact Wipro.