Background
The term, product life cycle, was first used by Theodore Levitt in 1965 in a Harvard Business Review article "Exploit the Product Life Cycle" Exploit the Product Life Cycle.
Levitt's model of the product life cycle:
There are some variations of the model originally presented by Levitt:
- 1973 Fox: Premarket - Introduction - Growth - Maturity - Decline. 1974 Wasson: Market development - Rapid growth - Competitive turbulence Saturation / Maturity - Decline. 1984 Anderson and Zeithaml: Introduction - Growth - Maturity - Decline. 1998 Hill and Jones: Embryonic - growth - maturity decline
Concept
It is a concept of great importance in the process of marketing and selling the product, since the behavior of the market, the situation of the environment and competition change over time.
These changes condition the design and affect the development of the product strategy; be it productive, marketing, advertising, operational, etc.
Thus:
"The product life cycle is the chronological process that passes from the launch of the product to the market until its disappearance."
Phases of the product life cycle
Stage 1. Market introduction or development:
This stage represents the first entry of a new product to the market, before there is a proven need or the existence of demand for the product has been fully tested in every way. Sales are low and moving slowly.
Stage 2. Growth or market growth:
Demand for the product begins to show a marked acceleration in growth and the market expands rapidly. This stage is also often referred to as The Takeoff Stage.
Stage 3. Maturity or mature market:
The level of demand falls and grows constantly, mostly this occurs due to attempts to keep the product afloat, at this stage is where the greatest number of strategies are applied to keep the product alive.
Stage 4. Decline or declining market:
The product begins to lose tractive for customers and sales fall by leaps and bounds.
Knowing the stages it is very important that an organization as such asks the following questions:
- Given the purpose of the product or service, how and how will the duration of each stage take? Given an existing product, how is it possible to determine what stage the product is in? Given the knowledge, how can it be used effectively?
Product life cycle models
Stage 1. Market introduction or development
Bringing a new product to market represents unknown, uncertainty, and often many unknown risks. Generally, the demand must be created during the beginning of this stage.
How long the stage can be depends on the complexity of the product, its degree of novelty and innovation, if it adjusts the needs of the clients and the presence of substitutes that present competition to the new product.
The cure for cancer would need virtually no market development for implicit reasons for example.
characteristics
- Sales are low. There are no competitors, and if there are very few. Prices are usually high at this stage, because there is only one offer, or a few. Expenses in promotion and distribution are high. Distribution activities are selective. Profits are negative or very low. The main objective of the promotion is to inform. The customers who buy the product are the innovators.
According to Stanton, Etzel, and Walker, the introductory stage is the riskiest and most costly stage of a product because a considerable amount of money has to be spent not only on developing the product but also seeking consumer acceptance of the offer. Therefore, it should be noted that many new products fail at this stage mainly because they are not accepted by a sufficient number of consumers.
New Product Concept
It must present some significant difference with respect to the existing ones, thus also accompanied by a marketing strategy in its launch to the market.
A new product can be classified according to its degree of novelty for the market or for the company that produces it. If it is new to both, it represents the highest degree of novelty and is an innovation.
If the product already exists on the market and is only new to the company, it consists of a new brand. And if for the company it is a product similar to its offer, it is a new model or redesign of models.
Causes of failure of new products
- The product does not really satisfy a need. The product is not perceived as a different product. Demand overestimation. Bad design of the introduction strategy. Lack of experience or knowledge of the sector and the market
Planning for new products
The rapid changes in technology, the intensification of competition and the emergence of the internet have presented significant challenges for the development of new products.
Careful planning does not guarantee the success of new products launched on the market, but they can help reduce failure rates.
Steps for launching new products
1. Generation of ideas
It involves a systematic search for new products, using a variety of sources and through different methods or procedures:
a) Sources of new ideas.
Current customers, employees, distributors and suppliers, scientists and inventors, patents, competitors and marketing consultants.
b) Methods to obtain new ideas.
- Brainstorming Delphi Method Expert Panel
2. Sifting of ideas.
- It involves a process of reducing them by means of which those that are infeasible or poor are eliminated. The product whose idea is evaluated must be compatible with the image and objectives of the company. Internal resources (production capacity, storage, financial resources), assess the required technology, in addition to the legal possibility.
3. Development and proof of concept.
- The concept of the product consists of a detailed description of the idea of the product in terms that have meaning for the consumer.The proof of concept: clarity of the concept, distinction of benefits, credibility of the same, possible improvements, intention to purchase, price.
4. Design of the marketing strategy and economic analysis.
- Develop a description of the target market and product positioning, as well as a forecast of sales, market share and estimated profits. In addition, an estimate of the evolution of price, distribution and promotion. The economic analysis involves a review of sales, costs, profits, duration in the market, in order to verify its contribution to the company's objectives.
5. Product development.
It involves the effective realization of a prototype of the product or preliminary versions of it. It involves going from a concept, drawing, graphic, model to a physical product, real or similar to the final product.
The development of the prototype allows to check production possibilities, costs, yields, etc.
6. Product testing.
Different prototypes must be tested by potential consumers. The product test can be done:
- Individually or by comparing the new product with similar ones from the competition, with identification or not of the brand of the new product, and where appropriate, of the competitors with whom it is compared. When there is no identification it is called a blind test. Instantly (the product is tested when it is displayed) or leaving the product to be tested for a time. At the consumer's home, points of sale or in appropriate locations.
7. Market test.
- It is a real marketing of the new product on a reduced scale. It is carried out in a limited but representative market. It has the advantage that allows obtaining a real estimate of how the product will be accepted by the market; if poor results are observed, deciding not to launch the product definitively. Conducting the market trial delays the final launch of the product, which discovers the company's intentions, reduces the surprise factor and can react in time to the competition.
8. Launch and marketing of the product.
- It will allow to check effectively the degree of acceptance of the product by the market, the repetition of purchases. It will definitively determine the target markets, sales forecasts, prices, distribution channels and promotion.
Stage 2. Growth or market growth
After the initial hangover, where consumers have been constantly bombarded with the product idea, it is time to create economies of scale that lead to continued increases in consumption and sales levels.
It is time to demonstrate the benefits of the product, start thinking about dynamic competition (moving from paper to reality) and above all, establish the competitive advantages that generate constant and continued growth in the market share of the product.
From a marketing point of view, it's time to go from novelty to consistency, and start developing longer-term campaigns in terms of advertising to get continued and growing recall.
characteristics
- Sales increase rapidly, a takeoff of the product is manifested. Profits grow rapidly and reach their highest point at the end of this stage. Competition intensifies, therefore, points of sale and new distribution channels increase. The first adopters carry out a diffusion process that attracts the first Most buyers Increases the number of product versions. The price begins to decrease. High investment in promotion in search of the first majority. In addition, the creation of brand loyalty is sought to generate repeat purchases.
Key points
At this stage the key points will be:
- Create a product culture that generates continuous increases in sales. Establish principles of competition and competitive strategies. Generate competitive advantages. From an economic point of view, reach the point of equilibrium. These stages must be successfully overcome, otherwise, they will not it makes sense to continue.
Stage 3. Maturity or mature market
Sales reach their maximum and their decrease begins. Profits begin to decline, stocks increase, production capacity exceeds demand, and weaker competitors begin to disappear. This phase is the longest in the life cycle and most products on the market are in this stage. Its duration can be extended if strategies to improve the product or search for new uses for it and attract new users are carried out.
Price competition is intense. The differences between the products are minimal, with more services associated with the product.
Investment in advertising is moderate and its strategy seeks to differentiate itself from competitors and preserve brand loyalty.
Stage 4. Decline or declining market
Sales gradually decrease and profits disappear. Production is concentrated in few companies, with a smaller variety of products. Prices may rise due to the disappearance of competitors.
Causes of decreased sales: technological advances, changes in tastes, loss of competitiveness, cheaper, durable alternative products.
The decision to definitively withdraw the product from the market or keep it longer will depend on the possibilities of substitution by a more profitable one, redesign the current product, new uses for the product, attract new users or the withdrawal of most competitors, situations that will allow temporary additional sales.
If the demand for a product decreases, there is a long-lasting drop in sales, which could drop to zero, or fall to its lowest level where it can continue for many years.
Within the decline of a product, 3 stages can be distinguished:
Stage 1: Loss of up to 25%
Price
The company begins to reduce prices
Distribution channels
The intensity of coverage is reduced or rendered almost nil.
Product
The product ages for technological, legal, fashion and new needs
Advertising
At this stage it is convenient to support promotion, negotiation and sales actions to slow down the loss of the market.
Stage 2: Loss of up to 50%
Price
- Continuation Strategy: maintain previous prices Concentration Strategy: keep resources focused on the strongest markets and channels.
Distribution channels
Amounts and quantities are negotiated with distributors.
Product
It is necessary to think about a product innovation, or a new product that will replace the previous one
Advertising
Take advantage of customer loyalty to reduce advertising costs
Stage 3: Loss of more than 50%
- Until the last moment, the image and brand of the company are used. Prices are reduced to take advantage of customer loyalty. At this stage it is necessary to start scheduling the withdrawal of the product from the market, since in these circumstances economic results are not obtained. The company must decide whether to innovate the product or withdraw it definitively. From the market.
Stage recognition
The various characteristics of each stage describe and help to recognize the stage in which the product is in a certain period of time. But hindsight will always be more accurate than current view. Perhaps the best way to verify the current stage is to try to visualize the possible next stage and work in retrospect. This approach has several virtues:
It forces you to constantly look ahead and try to reprehend the future and competitive environment. As Charles F. Kettering said, "All of us should be concerned about the future because that is where we will have to spend the rest of our lives."
Looking ahead gives more perspective to the present than considering the present itself. Most people know more about the present that is good for them. It is neither healthy nor useful to know the present too well, for our perception of the present is distorted too many times, also heavily by the pressures of everyday events.
The existence of different types of product life cycles presents the possibility of extending the life of certain products and services. To plan the life extension of a product, a pre-introduction stage can be carried out (At the end of the decline stage), for this there are 3 ways:
- Return to active rather than reactive product. Design a long-term plan designed to infuse new life into the product at the right time, with the right degree of caution, and with the amount of effort required. Geographically expand the target market.
