Product Life Cycle
• Product Life Cycle (PLC):
– Every product goes through a life cycle
from development to decline
– Each life cycle is different
– Some products have longer lifecycles than
others
– Some companies are very successful in
extending lifecycles
Product Life Cycle
• The Stages of the Product Life Cycle:
– Development
– Introduction/Launch
– Growth
– Maturity
– Saturation
– Decline
– Withdrawal
Product Life Cycle
Sales
Development
Introduction
Growth
Maturity
Saturation
Decline
Time
Product Life Cycle
• The Development Stage:
– Initial Ideas – possibly large number
– May come from any of the following –
• Market research – identifies gaps in the market
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Monitoring competitors
Planned research and development (R&D)
Luck or intuition – stumble across ideas?
Creative thinking – inventions, hunches?
Futures thinking – what will people be using/wanting/needing
5,10,20 years hence?
– At this stage there are high costs and no revenue –
therefore the company is making a large loss
Product Life Cycle
• Introduction/Launch:
– Advertising and promotion campaigns
– Target campaign at specific audience?
– Monitor initial sales
– Maximise publicity
– High cost
– Low sales
– Firm still making losses
– Length of time – type of product
Product Life Cycle
• Growth:
– Increased consumer awareness
– Sales rise
– Revenues increase
– Costs - fixed costs/variable costs, profits
may be made
– Monitor market – competitors reaction?
Product Life Cycle
• Maturity:
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Sales reach peak
Cost of supporting the product declines
Ratio of revenue to cost high
Sales growth likely to be low
Market share may be high
Competition likely to be greater
Price elasticity of demand?
Monitor market – changes/amendments/new
strategies?
Product Life Cycle
• Saturation:
– New entrants likely to mean market is ‘flooded’
– Necessity to develop new strategies.
– Sales and profits falling.
• Decline and Withdrawal:
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Product outlives/outgrows its usefulness/value
Fashions change
Better products appear
Sales decline
Cost of supporting starts to rise too far
Decision to withdraw may be dependent on
availability of new products and whether
fashions/trends will come around again?
Product Life Cycle
• Extending the life cycle
– Diversification – have core product but
introduce new flavours/styles etc.
– Innovate – use new technology to enhance the
product
– Change flavour
– Repackage
– Advertise to appeal different audience
– Re-launch – product that have been withdrawn
can make comebacks if sold right e.g
skateboards, yoyos
Product Life Cycle
Sales
Effects of Extension
Strategies
Time
Product Life Cycle
• Cash Flow and the Product Life Cycle
– During the development stage cash flow is
going to be NEGATIVE. Money has to be paid
out for equipment, wages etc but no money is
coming in.
– During the launch stage cash flow is still
NEGATIVE. More money is being paid out
than is coming in (as sales are very low at the
moment).
Product Life Cycle
• Cash Flow and the Product Life Cycle
– During the growth stage cash flow may turn from
NEGATIVE to POSITIVE. Lots of money is coming in
but there are many outgoings because the firm has to
continue to promote the product and may need to
expand production and its workforce.
– During maturity/saturation and decline the cash flow
will be POSITIVE. The company spends little money
on promoting it. It doesn’t need to expand production
but sales are still coming in. Only during the decline
stage will sales be so low that cash flow might be
NEGATIVE.
Product Life Cycle
Sales/Cash Flow
PLC and Cash Flow
PLC
Positive Cash Flow
Time
Negative Cash Flow
Product Portfolio Analysis
• Product Portfolio is the range
of products a company has in development or
available for consumers at any one time.
• The Boston Matrix is a means of analysing
the product portfolio and informing decision
making about possible marketing strategies.
It was developed by the Boston Consulting
Group – a business strategy and marketing
consultancy in 1968
The Boston Matrix
Market Growth
High
Low
Problem Children
Stars
Dogs
Cash Cows
Market Share
High
The Boston Matrix
• Stars
– Products in markets experiencing high growth
rates with a high or increasing share of the
market.
– Likely to be in the growth stage of product
lifecycle so costs of advertising and
machinery could still be high.
– Potential for high revenue and profit in the
future but not in the present.
The Boston Matrix
• Cash Cows:
– High market share
– Low growth markets
– maturity stage of
PLC
– Low cost support –
little spent on
advertising.
– High customer
loyalty.
– High cash revenue –
positive cash flows
The Boston Matrix
• Dogs:
– Products in a low
growth market
– Have low or
declining market
share (decline stage
of PLC)
– Associated with
negative cash flow
– May require large
sums of money to
support
– Company may drop
them soon
The Boston Matrix
• Problem Child:
– Products having a
low market share in
a high growth market
– May have potential
but needs money
spent to develop
them
– May produce
negative cash flow
– Potential for the
future or ditch the
product?
Product Portfolio
Analysis/Boston Matrix
• Advantages:
– The company knows at what stage of the product
life cycle its products are
– It will know whether the products are dogs, stars,
cash cows or problem children
– It will be able to understand the levels of revenue
the products should be generating
– Cost to the business may be determined.
Product Portfolio
Analysis/Boston Matrix
• Advantages:
– The likely level of advertising for the products will
be understood
– The company will be able to see if it needs to
develop any new ideas
– Likewise the company will be able to know if it
needs to get rid of any products
Questions
•
1.
Answer A
– Comments
– A correct – the costs of development are high and there are no sales as
the product has not been launched.
– B incorrect – a positive cash flow may be evident as sales are increasing
and may outweigh any other supporting costs such as marketing.
– C incorrect – sales are likely to outweigh any supporting costs.
– D incorrect – support may be minimal so costs are low despite a falling
sales trend.
• 2.
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Answer B
Comments
A incorrect – this is an activity used to support an extension strategy.
B correct – this is an activity designed to adapt the product itself.
C incorrect – this would be the development of a completely new product.
D incorrect – this would not necessarily extend the sales or life of the
product.
Questions
• 3.
Answer D
– Comments
– A incorrect – they may be cash cows, problem children or, indeed, dogs.
– B incorrect – the 25 products may not all be in the same market or in
markets with fast growth.
– C incorrect – despite being a star it may have lower sales levels than, say,
a cash cow product.
– D correct – this is one feature of a star product.
• 4.
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Diversification
Innovate
Change flavour
Repackage
Advertise to appeal different audience
Re-launch
Questions
• 5.
– To stay ahead of the competition in order to maintain market
share.
– To re-launch the brand to remind consumers of the brand’s
existence.
– To develop the range in order to meet changing market needs and
fashions.
– To introduce the product to a new segment of the market or a
younger audience.
– To prevent the product from being withdrawn due to a lack of
sales.