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Product Life Cycle Strategy

Today’s Learning Objectives:

1.  Understand the steps in the new-product


development process and the stages of the
product life cycle

2.  Understand how marketing strategies


change during the product’s life cycle.
New Product Development

Six categories of new products


Development of original
products, product 1.  New-to-the-world
improvements, product products
modifications, and new 2.  New product lines
brands through the firm’s
own R & D efforts. 3.  Additions to existing
product lines
4.  Improvements and
revisions of existing
products
5.  Repositioning
6.  Cost reductions
New Product Development

Why do new products fail?

ü  High level executive pushes a favorite idea


through in spite of negative research findings
ü  The idea is good, but the market size is
overestimated
ü  The product is incorrectly positioned in the
market, not advertised effectively, or overpriced
ü  The product is not well designed
ü  The product fails to gain sufficient distribution
coverage or support
ü  Development costs are higher than expected.
ü  Competitive response is underestimated
New Product Development

Factors that tend to hinder new-product development


§  Shortage of important ideas in certain areas
§  Fragmented markets
§  Social and governmental constraints
§  Cost of development
§  Capital shortages
§  Faster required development time
§  Shorter product life cycles
New Product Development

New-product deployment requires specific criteria – one


company established the following acceptance criteria
§  The product can be introduced within five years
§  The product has a market potential of at least $50
million and a 15 percent growth rate.
§  The product would provide at least 30 percent return
on sales and 40 percent on investment.
§  The product would achieve technical or market
leadership.
Sales and Profits
Over A Product’s Life
Product Life-Cycle Strategies

PLC Stages
•  Product §  Begins when the
development company develops a
new-product idea
•  Introduction §  Sales are zero
•  Growth §  Investment costs are
high
•  Maturity
§  Profits are negative
•  Decline
Product Life-Cycle Strategies

PLC Stages
•  Product
development §  Low sales
§  High cost per customer
•  Introduction
acquired
•  Growth §  Negative profits
•  Maturity §  Innovators are targeted
•  Decline §  Little competition
Product Life-Cycle Strategies

Marketing Strategies: Introduction Stage

§  Product – Offer a basic product


§  Price – Use cost-plus basis to set
§  Distribution – Build selective distribution
§  Advertising – Build awareness among early
adopters and dealers/resellers
§  Sales Promotion – Heavy expenditures to
create trial
Product Life-Cycle Strategies

PLC Stages
•  Product §  Rapidly rising sales
development §  Average cost per
•  Introduction customer starts to
decline
•  Growth §  Rising profits
•  Maturity §  Early adopters are
•  Decline targeted
§  Growing competition
Product Life-Cycle Strategies
Product Life-Cycle Strategies

Marketing Strategies: Growth Stage

§  Product – Offer product extensions, service,


warranty
§  Price – Penetration pricing
§  Distribution – Build intensive distribution
§  Advertising – Build awareness and interest in the
mass market
§  Sales Promotion – Reduce expenditures to take
advantage of consumer demand
Product
Product Life-Cycle
Life-Cycle Strategies
Strategies

PLC Stages
•  Product §  Sales peak
development §  Low cost per customer
•  Introduction §  High profits
•  Growth §  Middle majority are
targeted
•  Maturity
§  Competition starts to
•  Decline decline
Product Life-Cycle Strategies

Marketing Strategies: Maturity Stage

§  Product – Diversify brand and models


§  Price – Set to match or beat competition
§  Distribution – Build more intensive distribution
§  Advertising – Stress brand differences and benefits
§  Sales Promotion – Increase to encourage brand
switching
Product Life-Cycle Strategies

PLC Stages
•  Product
development
•  Introduction §  Declining sales
§  Low cost per customer
•  Growth
§  Declining profits
•  Maturity §  Laggards are targeted
•  Decline §  Declining competition
Product Life-Cycle Strategies

Marketing Strategies: Decline Stage

§  Product – Phase out weak items


§  Price – Cut price
§  Distribution – Use selective distribution: phase out
unprofitable outlets
§  Advertising – Reduce to level needed to retain hard-
core loyalists
§  Sales Promotion – Reduce to minimal level
Product Life-Cycle Strategies

Not all products follow this cycle (examples below)


§ Fads
§ Styles
§ Fashions