BUS-PM-w2d1

3.2 Managing Product Life Cycles

Every product on the market has a lifespan. A product begins with an original idea. If all goes well and the company gets the idea tomarket while the timing is favorable, the product enters the growth phase. Other companies take notice and introduce competingproducts. The rivalry either stimulates new product strategies that keep the product thriving, or the product moves on to decline.

The Product Lifecycle

By having an understanding of the Product Life Cycle,businesspeople can make savvy marketing choices.What is a popular item today that you've seen gothrough the Product Life Cycle?

Marketers describe the Product Life Cycle in four phases. Figure 3.2 depicts a product's contribution to the manufacturer's bottom lineduring each of the four stages:

1. Market Introduction,

2. Growth,

3. Market Maturity, and

4. Decline.

Figure 3.2: Product life cycle

The Product Life Cycle consists of four stages during which it contributessales and profits to the seller's bottom line.

During the Introduction phase, investment costs accrue, but are not yet recouped. Costs are high but sales and profits are low. DuringGrowth, sales rise as costs fall, due to efficiencies as the scale of production increases. The expenses of product introduction arerecouped. In Maturity, both costs and sales (and profits) are stable. Once Decline begins, both costs and sales decrease. Therefore, it'simportant for a company to have products in the Growth and/or Maturity phases and to predict decline before its onset; otherwise, it isdifficult to remain profitable.

The buyers for a product typically differ somewhat at each stage in the Product Life Cycle. The Diffusion of Innovations Theory describes apattern of adoption and explains the mechanism by which subsequent waves of buyers generate sales throughout a product's lifespan.Products in the Introduction stage attract buyers who are innovators, who like to think independently and take risks. Early adopters soonfollow, moving the product into its Growth stage. Products in the Maturity stage are bought by those who are generally more traditionalin their preferences and less willing to take risks—the largest segment of buyers. Latecomers are the last to try anything new andtypically adopt a product only as it is about to reach Decline—or already has. Diffusion of Innovations Theory is best seen as adescriptive tool, with limited utility in predicting outcomes (Clarke, 2009).

Two trends—increasing price competition at retail and increasing speed in manufacturing time-to-market—are shortening the ProductLife Cycle. Thus, competitive differentiation is growing in importance.

Product Life Cycle: Examples

CasaQ introduced a line of Christmas ornaments in2007 for people who embrace the Latino culture.

CasaQ

Market Introduction: In the early 1980s, two Minnesota brothers brought to marketRoller Blades, an improved in-line skate designed to fill a need for off-season hockeytraining. That introduction led to a whole new category of sports equipment forrecreational and professional team use. Marketing action focused on reachinginnovators who would try the new training tool.

Growth: Darlene Tenes started CasaQ in 2007 to produce a line of Christmas ornamentsfor people who embrace Latino culture. By focusing her marketing energy on a definedniche, Tenes's product launch went well. Before long, competitors took notice. Threeyears later, bigger companies are starting to copy her designs, but Tenes's marketingsavvy and roots in Hispanic culture have helped her maintain the growth of hercompany. View the product line at  www.casaqornaments.com  (Tenes, 2011).

Maturity: Mattel's Hot Wheels toy cars have been popular since their introduction in1968. To sustain the product in its maturity and stave off decline, Mattel begantargeting adult buyers by extending the line with Hot Wheels clothes, video and onlinegames, a TV show, and experiential marketing at events like the Indianapolis 500 race(Elliott, 2011).

Decline: Harry and David, the Oregon-based company founded in 1910 that practicallyinvented the mail order fruit business, began experiencing unexpected sales decline asthe "farm to table" ethos arose in the 21st century. The profusion of new choices, morelocally sourced, took the shine off Harry and David's products. The company installedan "orchard cam" to create a more tangible connection between consumers andgrowers, part of a concerted marketing effort to counteract declining sales (Gordinier, 2011).

As these examples show, those who plan for their products' life cycles will avoid harsh surprises when one phase gives way to the next.The best defense against declining sales due to product life cycle issues is a good offense—the development of new products.

New Product Development

The new product development process takes a brand new idea, proves its potential, and brings it to market, as shown in Table 3.3.During Idea Generation, ideas enter the process from sources such as customers, retailers, the sales force, and independent inventors. InScreening, ideas are judged against company objectives; some organizations maintain detailed checklists of standards new product ideasmust meet. The Evaluation stage brings detailed analysis to assess the idea's potential market, competitive strengths, and marketpotential. This step will determine the product's target market, service utility, competitive differentiation, and the financial and technicalrequirements it must meet to support company objectives. Product ideas that pass this stage proceed to development, includingengineering for form and function. Finally the Rollout stage arrives—typically in test markets first, followed by full-scale marketing.

Table 3.3: New product development process
Idea Generation →	→ Screening →	→ Evaluation →	→ Development →	→ Rollout
· Customers'suggestions · Research · Competitors · Other markets	· Fit to companystrategy · Market trends · Costs/profitabilityforecasts	· Potentialcustomers'reactions · Cost/salesestimates	· Developprototype · Test · Developmarketing plan(marketing mixdecisions)	· Executemarketing plan · Start production · Deliver to pointof sale
The new product development process generates an idea and brings it to market.

Many companies' ideas for new products come from an internal department responsible for generating new ideas. Other companiesactively solicit ideas from their customers or the public at large—a method that has grown rapidly with the onset of Marketing 3.0 andgreater appreciation of consumers' role in co-creation of value through products and experiences that satisfy their needs or wants(Prahad & Krishnan, 2008). A few companies operate as "idea labs" that match inventors with companies seeking new product ideas.

Introducing new products is a necessary activity for businesses that wish to avoid the shrinking profits associated with products indecline. Some companies resist new product development, fearing the adverse effects of cannibalization—a situation where the sales ofnew items eat into the sales of other products already in the market. When Apple introduced iPhones with the capacity to play musicfiles, it surely expected that move would cannibalize sales of its iPod music player line. Some companies take an opposite tack—astrategy of planned obsolescence. In this approach, product strategists deliberately retire an item before the end of its useful life bycutting off supply or service. In its place will be introduced a newer model, with the objective of prodding consumers to trade the old forthe new. Both strategies, valid in certain circumstances, point to the importance of planning for existing products' life cycles andstrategically timed new product introductions.

Line Extension Lessens Cost

Pepsi Co. created differentversions of its Mountain Dew.How did the company marketto a particular niche group?

PR Newswire/Associated Press

Launching new products is not the only way to generate new sales. Companies can give new life to existingproducts by developing a line extension. The high cost associated with developing and introducing a newproduct can be avoided when a marketer spots an opportunity to adapt an existing product to suit newniches in the same market, or finds an entirely new market that can be served by the existing product.

Examples of adapting an existing product to suit new niches abound in the soft drink aisle. Mountain Dew(a Pepsi product) exists in versions including regular, diet, caffeine-free, and caffeine-free diet to suit thosewho appreciate its citrus flavor. Additional variants in fruit flavors including Code Red and Diet Code Red(fruit punch), LiveWire (orange), and Baja Blast (tropical lime) bring Mountain Dew products to a newniche uninterested in its original citrus flavor profile.

Palm Products of Melbourne, Australia ( www.palmproducts.com.au ), a manufacturer of plastic drinkware,discovered an opportunity for line extension at a trade show.

Managing director and designer Robert Wilson was working on a stable, nonslip, unbreakable drinking glassfor boaters. He looked at other outdoor situations where these attributes would be beneficial and realizedcampers have similar needs to boaters but deal with an added obstacle of low or no light. He came up witha glow-in-thedark drink-ware product line, choosing a glowing shade of green for its emotional connectionto the environment.

Palm Products uses trade shows to reach distributors and retailers. Lara Blamey, marketing manager,exhibited the line as part of a larger product assortment at a hospitality industry trade show. The campingline brought two orders on the first day from senior care facilities, which saw the advantage of a glow-in-the-dark glass to residents who wake up thirsty in the night. "When we got back to the office in Melbourne,we started calling the suppliers to the hospitality industry and letting them know about the glow-in-thedark drinkware and its suitability to senior care. The suppliers identified another market: nightclubs! Theysaw a novelty as well as a practical safety," Blamey said. "In just a few months our camping range wentfrom a high-concept introduction to being stocked at 70-plus sporting goods stores, used at senior-carefacilities in three states in Australia, and increasingly sold to nightclubs" (Blamey, 2011).

The Product Life Cycle, an immutable fact of life for companies (regardless of product or serviceorientation), has three specific implications for marketers. These spring from advances in technology thatincrease both the speed and reach of business. First, product life cycles are becoming increasingly brief.Companies that quickly get their product to market first make the most profit. Second, companies mustinvite collaboration with consumers, who are eager to experience the engagement in co-creation. Third, marketers must now take aglobal perspective. New product ideas can come from outside markets; likewise, products in a mature or declining phase in the homecountry can achieve new life when introduced into an outside market.

To summarize: Every product experiences a four-stage life cycle in which sales begin, climb, mature, and decline, each requiringinvestment and to varying degrees contributing profit to the company. Buyers at different stages are characterized by somewhat differentpersonalities and motivations. Because almost all products eventually decline, every company needs to make new product developmentan institutionalized, ongoing process. Line extension is a strategy that generates additional sales of an existing product by adapting it tosuit new niches in the same market or finding a new market the existing product can serve.

Questions to Consider

Consider two staples of schools and offices—Post-it™ notes and highlighting markers. Where are these products in their product lifecycle? What advice would you give their manufacturers?

Introduction Phase:

The introduction phase is when the public first sees or hears about a product. The product appears in stores for the first time, and people start seeing print and television ads. During this phase, a company may choose one of two pricing strategies. They may set prices high to recoup initial expenses that went into producing the product. For example, a cellphone manufacturer with new technology may introduce cellphones 10 percent to 20 percent above the prices of most premium cellphones. They may price their phones higher because of the hype and anticipation of the new technology. The company also knows enough people will pay the extra 10 to 20 percent for it to earn substantial profits. Contrarily, the same cellphone company may introduce a cellphone with basic features at reduced prices in hopes of gaining lots of new customers.

Growth Phase

The growth phase is when sales and profits for the new product start rising. A company will usually keep product prices about the same during the growth stage to maximize earnings. Product quality is also maintained. However, a company will usually expand its product distribution during the growth stage. For example, a consumer-products company might start selling its organic cereal in new markets, based on positive marketing research from consumers. Eventually, the organic cereal will start appearing in stores across the country. Company marketers usually increase advertising during the growth phase, too, according to NetMBA.com.

Maturity Stage

Success inevitably leads to increased competition. Other companies eventually will start introducing similar products, especially if the initial product is highly successful. Consequently, the demand for the product and its competitors will peak at some point. Sales growth will start to decline. Some companies may lower prices to capture additional market share or new customers. At this point, a company may need to develop new product features or services to differentiate its products from the competition's. For example, the company that first introduced the product may enhance its customer-service department to establish itself as the service leader in the industry. The company's stellar customer service may be the distinguishing element that spurs additional sales and customers. The company would then feature its superior customer service in most of its advertising.

Decline Stage

Demand for the product will eventually wane as newer technologies are introduced. Hence, companies can either maintain the product, sell it at heavily reduced prices or discontinue the product. A company that maintains the product may continue increasing sales by finding new uses for the product. For example, a soap manufacturer may discover through marketing research that restaurants and industrial companies like the cleaning properties of its soap. Subsequently, the company would start selling its soap to both consumers and businesses. This strategy could help extend the life of the product.