Product Analysis:
Intro
Product life cycle
Product portfolio
Branding
Product life cycle
Product life cycle refers to the different stages of a product’s limited
life in terms of sales and profits/cash flows. Typically, there are 5
stages: development, introduction, growth, maturity and decline.
The product life cycle chart shows the progress of a product in terms
of sales and profits/cash flows .
Sales/profit
saturation
extension
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O------------------------------------------------------------------------------------------------ Time
Development introduction
Growth
Maturity Decline
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Development
• During the development stage, the product is being
researched , designed, developed and finally
launched into the market. A large number of new
products never progress beyond this stage.
• During this stage, costs will be incurred by the firm
in research and development but no sales will be
made. This means cash flow and profit will be
negative.
Introduction stage
• Following its development, a product is introduced
onto the market.
• During this stage, there is slow growth in sales as a
new product takes time to be accepted by
customers. However there will be expensive
promotion in order to make the consumers accept
the product.
• This means that during this stage there will be still
some loss or negative cash flows.
Growth stage
• In the growth stage, sales increase rapidly.
• Cash flow and profits start to turn positive as
sales revenue starts to pay off the costs.
• However, more money must be spent on
product improvement, promotion and
distribution to attract more customers.
Therefore profits will not be high
Maturity
• In this phase, the product has reached its peak
of sales and is fully established in the market.
This can be a long or a short period. The highest
point in this stage is the saturation point.
•
• Because the product is well known , there will
be less spending on promotion. Therefore, this
stage will be at the most profitable for the firm.
Decline
• In the decline stage, sales will begin to go down. This
period can be fast or slow. The main causes of the
decline of a product can be:
• Changes in taste and fashion, changes in technology,
new substitutes, new inventions, etc.
• During this period, profits fall and some producers
will try to extend the product life by modifying the
product, searching new markets, etc. Because
extension strategies may be expensive, some
producers may leave the market.
Assignment: P80 Q 1. (a)
• (a) Figure 2 shows a product with 4 years of
_______. It is a _________ product . After a
short phase of ________, it experienced rapid
_______ for ____ years. It is still in the
market and may continue to _______ or
nearing its ________ stage. A new _____
model could match the illustration.
• Figure 3 shows…
• Figure 3 shows a product which has ____ year
of development. It had a short introduction
period. After that period it experienced a
_____ and tremendous increase in sales for
approximately one year. It then decline very
fast. This product is likely to be a successfull
film or ________ album ……..
Extension strategies
• Extension strategies refer to any method of
extending the life of a product at the maturity
stage and delaying its decline. Common
strategies include:
• Price reductions. Lowering price will tend to
increase demand although temporarily.
• New markets. Finding new markets for the
current product can extend its life. New markets
include new outlets in different regions or
countries, new users (sport clothing as fashion
wear), etc.
Design. Updating design is another way of extending the life of a
product. Car manufacturers regularly update models. New versions
of computer games or soft wares are regularly introduced.
Range. A wider range of a product can increase sales. Examples
include cereals for breakfast, bank accounts for the young, Lucozade
for sportsmen, etc.
Promotion. New advertising campaigns constantly extends the life
of many products
Appearance. Changing the format or packaging of a product can
extend the life of the product. For example, soft drinks are sold in
cans.
Assignment: Hall unit 17 Q2. (a)
• Before 1984, Rachel’s had sold _____ ______,
followed by ______ and ________. But 1984
saw the ‘first commercial ……………..’ which is
a ________ product from the previous ones.
Therefore, it can be argued that the
introduction of organic yogurt was an example
of ………… product being brought into the
market.
•
• Extension strategies are used by firms as products
reach _______ or _______ stage. They are
designed to increase _______ by changing
aspects of the product, such as ______ or finding
new _______. In this case, yogurt was changed so
that it contained less _____ than the original one.
• Therefore, it can be argued that the introduction
of fat-free yogurt was an example of _______
_________.
Different life cycles
• Some products have short life span (2-3 years).
For example: Windows 95, 98, 2000.
• Others can be longer (more than 25 Years).
Examples include: Coca Cola, Kellogg’s
cornflakes. Extension strategies are usually used
to extend the life of many products.
• Not all products will go through every stage of
the life cycle and are withdrawn early. Those
with very short life (< 1 year) are called fads.
Uses of product life cycle model
By assessing the stages of life cycle of each product:
A firm can assess how much longer a product will longer contribute
to sales and profits.
A firm can also find out how urgent it needs to develop new
products as older ones are in decline.
A firm will identify points at which extension strategies may
necessary.
A firm can assess the balance of its portfolio (range) of products.
Ideally, a firm must have products at all stages of the life cycle.
Limitation of product life cycle
Many products cannot be characterized in terms of life cycle, e.g.
Basic foodstuffs, raw materials, etc.
The life cycle of a product cannot be predicted in advance
Variations in marketing effort will affect the duration of life cycle
phases.
Termination of a product’s life is often a management decision.
Extension strategies can extend the life of a product.
Product diffusion curve
This curve groups the consumers according to how
quickly they adopt a product along its life cycle. It splits the
consumers into five groups:
……………………|…………………………………|………………………………|…………………………|……………………
Innovators
Early adopters
Early majority
Late majority
Laggards
Innovators are customers who are prepared to take risks to buy a new
and therefore unproven product, often to show off. They will buy
at the introduction stage of the product.
Early adopters are customers who like to be with fashion but tend
to research new products thoroughly before buying. They will buy
when growth starts, i.e. after the innovators have tried a product.
The early majority are a bit fashionable but are followers of fashion
rather than leaders. They therefore buy after growth has started and
in the early stage of maturity.
The late majority tend to be suspicious of new products. They will
buy when many people are already buying, i.e. at the later stage of
maturity.
Laggards are not concerned about image. They will switch to another
product when its price is low or their existing products are obsolete.
They even pride in not following fashion They mostly buy in the
late maturity or at the decline stage.