Because it takes time to roll out a new product and fill dealer pipelines, sales growth tends to be slow at this stage. Buzzell identified several causes for the slow growth:
Figure 3-11 Sales and Profit Life Cycles
Figure 3-11 Sales and Profit Life Cycles
Table 3.7 Summary of Product Life Cycle Characteristics, Objectives, and Strategies
High cost per customer
Rapidly rising sales Peak sales
Average cost per customer Rising profits Early adopters Growing number
Low cost per customer High profits Middle majority Stable number beginning to decline
Declining sales Low cost per customer Declining profits Laggards
Create product awareness and trial
Maximize market share
Maximize profit while defending market share
Reduce expenditure and milk the brand
Distribution Advertising Sales Promotion
Offer a basic product
Build selective distribution
Build product awareness among early adopters and dealers
Use heavy sales promotion to entice trial
Offer product extensions, service, warranty
Price to penetrate market
Build intensive distribution
Build awareness and interest in the mass market
Reduce to take advantage of heavy consumer demand
Diversify brands and items
Price to match or best competitors' Build more intensive distribution
Stress brand differences and benefits
Increase to encourage brand switching
Phase out weak models
Go selective: phase out unprofitable outlets
Reduce to level needed to retain hard-core loyals
Sources: Chester R.Wasson, Dynamic Competitive and Product Life Cycles (Austin,TX: Austin Press, 1978); John A.Weber, "Planning Corporate Growth with Inverted Product Life Cycles," Long Range Planning, October 1976, pp. 12-29; and Peter Doyle,"The Realities of the Product Life Cycle," Quarterly Review of Marketing, Summer 1976.
delays in the expansion of production capacity, technical problems ("working out the bugs"), delays in obtaining adequate distribution through retail outlets, and customer reluctance to change established behaviors.21 Sales of expensive new products are retarded by additional factors such as product complexity and fewer buyers.
Profits are negative or low in the introduction stage because of low sales and heavy distribution and promotion expenses. Much money is needed to attract distrib-
utors. Promotional expenditures are high because of the need to (1) inform potential consumers, (2) induce product trial, and (3) secure distribution. Firms focus their selling on those buyers who are the readiest to buy, usually higher-income groups. Prices tend to be high because costs are high due to relatively low output rates, technological problems in production, and high required margins to support the heavy promotional expenditures.
Companies must decide when to enter the market with a new product. Most studies indicate that the market pioneer gains the most advantage. Such pioneers as Amazon.com, Cisco, Coca-Cola, eBay, Eastman Kodak, Hallmark, Microsoft, Peapod.com, and Xerox developed sustained market dominance.
However, the pioneer advantage is not inevitable. Schnaars studied 28 industries in which the imitators surpassed the innovators and found several weaknesses among the failing pioneers, including new products that were too crude, were improperly positioned, or appeared before there was strong demand; product-development costs that exhausted the innovator's resources; a lack of resources to compete against entering larger firms; and managerial incompetence or unhealthy complacency. Successful imitators thrived by offering lower prices, improving the product more continuously, or using brute market power to overtake the pioneer.22 As one example, Apple's Newton, the first handheld personal digital assistant, failed because it could not decipher the handwriting of users consistently. In contrast, imitator Palm Pilot's smaller, more advanced product was enormously successful because it allowed users to input information with a few standardized strokes of the stylus.23
Still, the pioneer knows that competition will eventually enter the market and charge a lower price, which will force the pioneer to lower prices. As competition and market share stabilize, buyers will no longer pay a price premium; some competitors will withdraw at this point, and the pioneer can then build share if it chooses.24
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