Stages in the product life cycle

Analysts of the product life cycle generally divide it into four distinct stages: the pioneering stage, the growth stage, the maturity stage, and the renewal stage - each with different characteristics.

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Figure [9.1] Generic product life cycle

Pioneering stage

New products or product versions in the pioneering or introductory stage of the life cycle are unique and face a competitive situation which is quite different from that faced by them later in the life cycle. New and innovative products are a feature of the pioneering stage of the life cycle. During this stage new product forms or new product classes are introduced and developed. As such, these products are new to the world and usually do not have any direct competition when they first appear.

During the pioneering stage the organization expects sales to grow slowly, profits to be very low or non-existent and cash flow to be negative. Furthermore, there is normally a great deal of risk and uncertainty associated with its future acceptance by customers. This is a high cost period in the development of the product market since investment is needed to develop the market. At this stage it is unlikely that the organization would have many competitors and customers tend to be innovative. At this stage the organization concentrates on relatively high priced undifferentiated products sold through few outlets with a marketing communications mix concentrated on creating awareness. Customers and intermediaries must be informed of the product's existence and of any unique features it possesses; awareness is emphasized in promotional messages. It may, however, take a relatively long time to make the product available in all relevant markets and to fill the distribution channels. Sales growth may be very slow as inventories build up and the first sales materialize.

Several reasons for slow growth during the pioneering stage have been identified: delays in achieving adequate distribution, the novelty associated with the new product, and customer reluctance to change existing buying patterns.

During the pioneering stage firms focus on identifying what customers want, i.e. the value of a proposed new product or service and the best way of delivering it. Success in this embryonic phase often goes to those firms that best define and implement customer value requirements; identifying and selecting customer value are central to success.

Growth stage

It is difficult to state exactly when a product moves from the pioneering to the growth stage. Generally speaking, the organization knows when it has entered the growth stage; the most telling phenomenon is the rapid growth in sales. Purchase patterns and distribution channels tend to change rapidly and market share can be increased relatively quickly and at low cost by focusing on incremental sales, especially among new users instead of existing users. For consumer products repeat orders begin and the less innovative consuming majority begin to show an interest in the product. Strong market growth attracts new competitors into the market. These competitors are product imitators who are attracted by the opportunities for large-scale production and profit.

The marketing activity of imitators and the new product features they include give credibility to the innovator's product and further expand the market. The competitive pressure may not be an issue at this stage because growth is so strong and customers seek the relatively new products. As the market expands there may be temporary room for many competitors, each producing a product version customized to particular market segments. The increased number of competitors leads to an increase in the number of distribution outlets and industry sales increase rapidly to fill distribution channels.

Real prices tend to fall in the growth stage. In some product markets the lower real price is combined with an improved product in intensive distribution to create brand preference. Brand preference established by an innovator in the growth stage is difficult to dislodge. Promotional expenditures tend to remain the same or increase as organizations continue to educate the market and meet new competition. Sales, however, increase much faster causing a rapid decline in the promotion-to-sales ratio. Profits tend to increase in the growth stage as promotion costs are spread over a much greater volume and unit manufacturing costs fall faster than prices. The accelerating growth rate eventually slows down and declines, however. As growth decelerates, a new approach to the market is warranted.

During the growth stage companies usually continue to innovate the product in order to remain ahead of imitators because without continued investment imitators may reach the stage of product parity, leaving the pioneer with no competitive advantage. Inadequate attention to continued product and market development in the growth stage may shorten the life cycle and dissipate any leadership position obtained.

With a slowdown in growth, the battle for market share and survival tends to precipitate a shake-out among competitors leaving only the stronger to share a relatively large and stable market. A shake-out in the late stage of the growth stage of the life cycle refers to the failure or disappearance of a significant number of marginal competitors as a result of intense competition which seems to occur as sales growth slows down as the market approaches maturity.

Maturity stage

There comes a point when the rate of sales growth slows down to the equivalent of the general rate of growth in economic activity in the market; the product has entered the stage of maturity. During the maturity stage purchasing patterns and distribution channels stabilize, as a result of which a substantial increase in share by one company at the expense of another is strongly resisted. Share gains during the mature stage of the life cycle are time-consuming and expensive. In maturity, sales growth declines and profits begin to wane, but cash flow is at its strongest. Unit marketing costs are at their lowest. The marketing objective is to manage low-priced, differentiated products in intensive distribution for long-term brand loyalty.

Companies prolong the maturity stage by improving the product in various ways or by adapting it to new segments or uses, by developing line extensions to cater for new segments and by attempting to change customer needs and sometimes by price decreases to attract the more price-sensitive segments of the market. In effect, the firm may reposition its product to defend its market. The maturity stage of the life cycle is normally associated with strong cash flows which provide funds for further new products and profits.

The mature stage of a market normally lasts longer than the previous stages but it still poses formidable challenges to the company. It is generally believed that products with high shares in low growth markets generate more cash than is needed to maintain their position in the market. These products are referred to as cash cows and are most valuable to the company. The usual marketing strategy for cash cows is to provide support so that market share is maintained.

Cash cows are businesses or products with a relatively high market share in a low growth market which yield cash in excess of reinvestment needs to develop the product or business. Successful cash cows are managed for their positive cash flow. These products or businesses generate the cash required for profits or contribution to overheads or dividends. Cash cows support acquisitions and the necessary cash flow to invest in more recent product introductions, still classified as questionable. The dilemma facing the organization is to know how much cash to take from the cash cow to support other products and how much to reinvest in the cash cows themselves to ensure their continued health. Many companies fail in this regard by bleeding cash cows to support questionable ventures.

Renewal stage

New formats or new innovations which threaten the existing business system provide evidence that the renewal stage of the product life cycle has arrived. Sudden environmental changes, e.g. government regulations, rapid changes in customer buying patterns or in general macroeconomic conditions may also speed up the onset of the need for renewal. The ultimate challenge for a dominant company is presented in the renewal stage. Leading successive generations of innovation is crucial to a business system's long-term success and its ability to renew itself.

But despite the difficulties of such a complex and changing business environment, managers can design longevity into a business system. During the growth and maturity stages, for instance, all the companies in the business system devote much effort to microsegmenting their markets, creating close, supportive ties with customers, building relationships. These customers tend to remain committed to a particular business system long enough for its members to incorporate the benefits of innovation and new approaches.

Superficially, competition among business systems is a contest for market share. But below the surface, these competitive struggles are contests over who will direct the future. People make decisions - there is conscious direction; the larger patterns are maintained by a complex network of choices among organizations. This is the principal reason why this stage is referred to as 'renewal' instead of the more traditional 'decline' stage as 'decline' conveys a sense of necessary demise whereas most organizations seek to renew or refresh their products during this stage. The symptoms of 'decline', however, are very much worth noting.

The renewal stage should be predictable and under company control. Ideally the organization wishes to have its product in a leadership or strong competitive position in the chosen market segments by this stage as marketing strategies in the maturity stage revolve around deepening the company's position in the market and extending the maturity stage as long as possible.

Products eventually reach the stage where they can no longer be maintained in the market in their current form. The market loses interest in them, the organization fails to upgrade and support them or they are actually phased out deliberately in favour of new products at the pioneering stage. Whatever the reason, most product versions reach the renewal or decline stage and disappear from the market in the form they entered it.

Sales decline for many reasons, most of which may be outside the manufacturer's control. Technological advances, shifts in consumer tastes and competitive activities account for most of the reasons why organizations discover they have too much capacity, suffer from increased price cutting and see their profits erode.

Mismanagement of the renewal stage, especially if it involves too much investment in the product to retain it artificially beyond its profitable life, can result in a serious financial trap for the organization and damage its reputation among customers.

The sales decline may be slow, rapid, or lingering. Careful management of the process in the decline stage usually involves the reduction of product models, the reduction of product variations and options and the maintenance of reasonable margins. Organizations may also withdraw from smaller market segments and weaker channels. In the renewal stage firms stress low costs and production and marketing efficiency. Prices may even be raised for restricted product versions in selective distribution. Reinforcement advertising is stressed. Such a combination usually produces adequate cash flows for the company to invest in new products or renew existing ones.

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