PRODU

CT LIFE
CYCLE
STAGES
OF PLC

STAGES OF PRODUCT LIFE CYCLE

Submitted By:
M.Sajid
Roll No 026

Submitted To:

Prof. Nasir Chattha

PRODUCT LIFE CYCLE

An introduction to the Product Lifecycle
The theory of a product life cycle was first introduced in the 1950s to explain the expected life
cycle of a typical product from design to obsolescence, a period divided into the phases of
product introduction, product growth, maturity, and decline. The goal of managing a product's
life cycle is to maximize its value and profitability at each stage. Life cycle is primarily
associated with marketing theory.
There are 4 stages shown in the table below to the lifecycle process, although decline can be
avoided by reinventing elements of the product. It is also recognized that some products never

move beyond the introduction phase whilst others move through the life cycle much faster
than others.

Stages
Introduction:
Refers to the initial stage where an organization creates awareness among customers about the
availability of a product and develops a market for the new product. The sales of the organization
during this period are constant. In this stage, the pricing policy depends upon the availability of
dose substitutes. Moreover, in this stage, the prices are either fixed higher to cover the
production cost or low to attract customers.
Strategies that are used in the introduction stage of a product:

The two types of pricing strategies in the introduction stage:

1 Price Skimming:
Refers to a pricing strategy in which a producer sets high prices initially when the product is
newly introduced in the market. After that, there is a gradual reduction in the prices of a product.
This strategy is used to capture maximum consumer surplus and spread profits over a period of
time.

2 Penetration Pricing:
Refers to charging minimum price for a product for gaining large market share. In this strategy, it
is expected that customers switch to the product because of lower price.
The main benefits of penetration pricing are as follows:
a. Discourage the entry of competitors as low prices do not suit them

b. Results in the fast adoption of products

c. The limitations of penetration pricing are as follows:
1. Raises the expectations of customers that the prices will remain low for a long period

2. Creates a low-profit margin that makes it difficult for the organization to survive
When the objective of penetration pricing is achieved, the price of the product is increased.
Specific costs may be associated with each stage.

(1) Pre-production/Product development stage

A high level of setup costs will be incurred in this stage (preproduction costs), including
research and development (R&D), product design and building of production facilities.

(2) Launch/Market development stage

Success depends upon awareness and trial of the product by consumers, so this stage is
likely to be accompanied by extensive marketing and promotion costs.

(3) Growth stage

Marketing and promotion will continue through this stage.

In this stage sales volume increases dramatically, and unit costs fall as fixed costs are
recovered over greater volumes.

(4) Maturity stage

Initially profits will continue to increase, as initial setup and fixed costs are recovered.

Marketing and distribution economies are achieved.

However, price competition and product differentiation will start to erode profitability as
firms compete for the limited new customers remaining

(5) Decline stage

Marketing costs are usually cut as the product is phased out

Production economies may be lost as volumes fall

Meanwhile, a replacement product will need to have been developed, incurring new
levels of R&D and other product setup costs.

Alternatively additional development costs may be incurred to refine the model to extend
the life-cycle (this is typical with cars where 'product evolution' is the norm rather than
'product revolution').

Managing Lifecycle Costs

A product's costs are not evenly spread through its life.
According to Berliner and Brimson (1988), companies operating in an advanced manufacturing
environment are finding that about 90% of a product's lifecycle costs are determined by
decisions made early in the cycle. In many industries, a large fraction of the life-cycle costs
consists of costs incurred on product design, prototyping, programming, process design and
equipment acquisition.
This had created a need to ensure that the tightest controls are at the design stage, i.e. before a
launch, because most costs are committed, or 'locked-in', at this point in time.

Management accounting systems should therefore be developed that aid the planning and control
of product lifecycle costs and monitor spending and commitments at the early stages of a
product's life cycle.

Maximizing a product's lifecycle return:

There are a number of factors that need to be managed in order to maximize a product's return
over its lifecycle:
Design costs out of the product

It was stated earlier that around 90% of a product's costs were often incurred at the design and
development stages of its life. Decisions made then commit the organization to incurring the
costs at a later date, because the design of the product determines the number of components, the
production method, etc. It is absolutely vital therefore that design teams do not work in isolation
but as part of a cross-functional team in order to minimize costs over the whole lifecycle.
Value engineering helps here; for example, Russian liquid-fuel rocket motors are intentionally
designed to allow leak-free welding. This reduces costs by eliminating grinding and finishing
operations (these operations would not help the motor to function better anyway.)
Minimize the time to market

In a world where competitors watch each other keenly to see what new products will be
launched, it is vital to get any new product into the marketplace as quickly as possible. The
competitors will monitor each other closely so that they can launch rival products as soon as
possible in order to maintain profitability. It is vital, therefore, for the first organization to launch
its product as quickly as possible after the concept has been developed, so that it has as long as
possible to establish the product in the market and to make a profit before competition increases.
Often it is not so much costs that reduce profits as time wasted.

Maximize the length of the life cycle itself

Generally, the longer the life cycle, the greater the profit that will be generated, assuming that
production ceases once the product goes into decline and becomes unprofitable. One way to
maximize the lifecycle is to get the product to market as quickly as possible because this should
maximize the time in which the product generates a profit.
Another way of extending a product's life is to find other uses, or markets, for the product. Other
product uses may not be obvious when the product is still in its planning stage and need to be
planned and managed later on. On the other hand, it may be possible to plan for a staggered entry
into different markets at the planning stage.
Many organizations stagger the launch of their products in different world markets in order to
reduce costs, increase revenue and prolong the overall life of the product. A current example is
the way in which new films are released in the USA months before the UK launch. This is done
to build up the enthusiasm for the film and to increase revenues overall. Other companies may
not have the funds to launch worldwide at the same moment and may be forced to stagger it.

Skimming the market is another way to prolong life and to maximize the revenue over the
product's life.