Product Life Cycle
Overview
Provided by: Lumen Learning. License: CC BY: Attribution
Outcome: Product Life Cycle
What you’ll learn to do: discuss the product life cycle and its implications for marketing
We just considered the case of Apple launching a new product (the Apple Watch). A particular set of marketing strategies and tactics was needed to define a product that did not exist, to create it, and introduce it to the world. If we were instead focused on marketing the iPhone, which was introduced in 2007, would the strategies and tactics be different? The answer is yes.
In this section we will look at how marketing approaches for a product change over time. Nabisco introduced Wheat Thins crackers in 1947, yet the brand continues to be strong (it generated $344.8 million in revenue in 2015). The cracker even has more than 250,000 Twitter followers. In contrast, other products like children’s toys and trendy clothing are designed for a single sales season and have to be quickly replaced with the next model, in order to draw sales. While the length of time is different, there are common patterns across the product life cycle that we will discuss in this section.
The specific things you’ll learn in this section include:
- Identify the stages of the product life cycle
- Explain the unique marketing requirements of each stage
- Identify challenges with using product lifecycle in marketing
Learning Activities
The learning activities for this section include the following:
- Reading: Stages of the Product Life Cycle
- Reading: Marketing through the Product Cycle
- Reading: Challenges in the Product Life Cycle
Licenses and Attributions
CC licensed content, Original
- Outcome: Product Life Cycle. Provided by: Lumen Learning. License: CC BY: Attribution
Reading: Stages of the Product Life Cycle
A company has to be good at both developing new products and managing them in the face of changing tastes, technologies, and competition. Products generally go through a life cycle with predictable sales and profits. Marketers use the product life cycle to follow this progression and identify strategies to influence it. The product life cycle (PLC) starts with the product’s development and introduction, then moves toward withdrawal or eventual demise. This progression is shown in the graph, below.
The five stages of the PLC are:
- Product development
- Market introduction
- Growth
- Maturity
- Decline
The table below shows common characteristics of each stage.
| Stage 1: Product Development |
|
|---|---|
| Stage 2: Market Introduction |
|
| Stage 3: Growth |
|
| Stage 4: Maturity |
|
| Stage 5: Decline |
|
Using the Product Life Cycle
The product life cycle can be a useful tool in planning for the life of the product, but it has a number of limitations.
Not all products follow a smooth and predictable growth path. Some products are tied to specific business cycles or have seasonal factors that impact growth. For example, enrollment in higher education tracks closely with economic trends. When there is an economic downturn, more people lose jobs and enroll in college to improve their job prospects. When the economy improves and more people are fully employed, college enrollments drop. This does not necessarily mean that education is in decline, only that it is in a down cycle.
Furthermore, evidence suggests that the PLC framework holds true for industry segments but not necessarily for individual brands or projects, which are likely to experience greater variability.[1]
Of course, changes in other elements of the marketing mix can also affect the performance of the product during its life cycle. Change in the competitive situation during each of these stages may have a much greater impact on the marketing approach than the PLC itself. An effective promotional program or a dramatic lowering of price may improve the sales picture in the decline period, at least temporarily. Usually the improvements brought about by non-product tactics are relatively short-lived, and basic alterations to product offerings provide longer benefits.
Whether one accepts the S-shaped curve as a valid sales pattern or as a pattern that holds only for some products (but not for others), the PLC concept can still be very useful. It offers a framework for dealing systematically with product marketing issues and activities. The marketer needs to be aware of the generalizations that apply to a given product as it moves through the various stages.
- Mullor-Sebastian, Alicia. “The Product Life Cycle Theory: Empirical Evidence.” Journal of International Business Studies 14.3 (1983): 95–105.
Licenses and Attributions
CC licensed content, Original
- Revision and adaptation. Provided by: Lumen Learning. License: CC BY: Attribution
CC licensed content, Shared previously
- Product Life-cycle Management (Marketing). Provided by: Wikipedia. Located at: https://en.wikipedia.org/wiki/Product_life-cycle_management_(marketing). License: CC BY-SA: Attribution-ShareAlike
- Chapter 7: Introducing and Managing the Product, from Introducing Marketing.. Authored by: John Burnett. Provided by: Global text. Located at: http://solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf.. License: CC BY: Attribution
Reading: Marketing through the Product Cycle
There are some common marketing considerations associated with each stage of the PLC. How marketers think about the marketing mix and the blend of promotional activities–also known as the promotion mix–should reflect a product’s life-cycle stage and progress toward market adoption. These considerations cannot be used as a formula to guarantee success, but they can function as guidelines for thinking about budget, objectives, strategies, tactics, and potential opportunities and threats.
Keep in mind that we will discuss the new-product development process later in this module, so it is not covered here.
Market Introduction Stage
Think of the market introduction stage as the product launch. This phase of the PLC requires a significant marketing budget. The market is not yet aware of the product or its benefits. Introducing a product involves convincing consumers that they have a problem or need which the new offering can uniquely address. At its core, messaging should convey, “This product is a great idea! You want this!” Usually a promotional budget is needed to create broad awareness and educate the market about the new product. To achieve these goals, often a product launch includes promotional elements such as a new Web site (or significant update to the existing site), a press release and press campaign, and a social media campaign.
There is also a need to invest in the development of the distribution channels and related marketing support. For a B2B product, this often requires training the sales force and developing sales tools and materials for direct and personal selling. In a B2C market, it might include training and incentivizing retail partners to stock and promote the product.
Pricing strategies in the introduction phase are generally set fairly high, as there are fewer competitors in the market. This is often offset by early discounts and promotional pricing.
It is worth noting that the launch will look different depending on how new the product is. If the product is a completely new innovation that the market has not seen before, then there is a need to both educate the market about the new offering and build awareness of it.
Google Glass
In 2013 when Google launched Google Glass—an optical head-mounted computer display—it had not only to get the word out about the product but also help prospective buyers understand what it was and how it might be used. Google initially targeted tech-savvy audiences most interested in novelty and innovation (more about them later when we discuss diffusion of innovation). By offering the new product with a lot of media fanfare and limited availability, Google’s promotional strategy ignited demand among these segments. Tech bloggers and insiders blogged and tweeted about their Google Glass adventures, and word-of-mouth sharing about the new product spread rapidly. You can imagine that this was very different from the launch of Wheat Thins Spicy Buffalo crackers, an extension of an existing product line, targeting a different audiences (retailers, consumers) with promotional activities that fit the product’s marketing and distribution channels. The Google Glass situation was also different from the launch of Tesla’s home battery. In that case Tesla offered a new line of home products from a company that had previously only offered automobiles. Breaking into new product categories and markets is challenging even for a well-regarded company like Tesla. As you might expect, the greater the difference in new products from a company’s existing offerings, the greater the complexity and expense of the introduction stage.
One other consideration is the maturity of the product. Sometimes marketers will choose to be conservative during the marketing introduction stage when the product is not yet fully developed or proven, or when the distribution channels are not well established. This might mean initially introducing the product to only one segment of the market, doing less promotion, or limiting distribution (as with Google Glass). This approach allows for early customer feedback but reduces the risk of product issues during the launch.
While we often think of an introduction or launch as a single event, this phase can last several years. Generally a product moves out of the introduction stage when it begins to see rapid growth, though what counts as “rapid growth” varies significantly based on the product and the market.
Growth Stage
Once rapid growth begins, the product or industry has entered the growth stage. When a product category begins to demonstrate significant growth, the market usually responds: new competitors enter the market, and larger companies acquire high-growth companies and products.
These emerging competitive threats drive new marketing tactics. Marketers who have been seeking to build broad market awareness through the introduction phase must now differentiate their products from competitors, emphasizing unique features that appeal to target customers. The central thrust of market messaging and promotion during this stage is “This brand is the best!” Pricing also becomes more competitive and must be adjusted to align with the differentiation strategy.
Often in the growth phase the marketer must pay significant attention to distribution. With a growing number of customers seeking the product, more distribution channels are needed. Mass marketing and other promotional strategies to reach more customers and segments start to make sense for consumer-focused markets during the growth stage. In business-to-business markets, personal selling and sales promotions often help open doors to broader growth. Marketers often must develop and support new distribution channels to meet demand. Through the growth phase, distribution partners will become more experienced selling the product and may require less support over time.
The primary challenges during the growth phase are to identify a differentiated position in the market that allows the product to capture a significant portion of the demand and to manage distribution to meet the demand.
Maturity Stage
When growth begins to plateau, the product has reached the maturity phase. In order to achieve strong business results through the maturity stage, the company must take advantage of economies of scale. This is usually a period in which marketers manage budget carefully, often redirecting resources toward products that are earlier in their life cycle and have higher revenue potential.
At this stage, organizations are trying to extract as much value from an established product as they can, typically in a very competitive field. Marketing messages and promotions seek to remind customers about a great product, differentiate from competitors, and reinforce brand loyalty: “Remember why this brand is the best.” As mentioned in the previous section, this late in the life cycle, promotional tactics and pricing discounts are likely to provide only short-term benefits. Changes to product have a better chance of yielding more sustained results.
In the maturity stage, marketers often focus on niche markets, using promotional strategies, messaging, and tactics designed to capture new share in these markets. Since there is no new growth, the emphasis shifts from drawing new customers to the market to winning more of the existing market. The company may extend a product line, adding new models that have greater appeal to a smaller segment of the market.
Often, distribution partners will reduce their emphasis on mature products. A sales force will shift its focus to new products with more growth potential. A retailer will reallocate shelf space. When this happens the manufacturer may need to take on a stronger role in driving demand.
We have repeatedly seen this tactic in the soft drink industry. As the market has matured, the number of different flavors of large brands like Coke and Pepsi has grown significantly. We will look at other product tactics to extend the growth phase and manage the maturity phase in the next section.
Decline Stage
Once a product or industry has entered decline, the focus shifts almost entirely to eliminating costs. Little if any marketing spending goes into products in this life stage, because the marketing investment is better spent on other priorities. For goods, distributors will seek to eliminate inventory by cutting prices. For services, companies will reallocate staff to ensure that delivery costs are in check. Where possible, companies may initiate a planned obsolescence process. Commonly technology companies will announce to customers that they will not continue to support a product after a set obsolescence date.
Often a primary focus for marketers during this stage is to transition customers to newer products that are earlier in the product life cycle and have more favorable economics. Promotional activities and marketing communications, if any, typically focus on making this transition successful among brand-loyal segments who still want the old product. A typical theme of marketing activity is “This familiar brand is still here, but now there’s something even better.”
Licenses and Attributions
CC licensed content, Original
- Reading: Marketing through the Product Cycle. Provided by: Lumen Learning. License: CC BY: Attribution
CC licensed content, Shared previously
- Ok Glass, Find Spaceship. Authored by: Thomas Hawk. Located at: https://www.flickr.com/photos/thomashawk/22467231948/. License: CC BY-NC: Attribution-NonCommercial
Reading: Challenges in the Product Life Cycle
In theory, the product life cycle follows a predictable path that is easy to understand. This might suggest that the marketer just needs to gear up for the ride and be ready to adjust tactics as the product moves through its life cycle. To the contrary, a marketer’s job is much less passive—instead, the marketer’s goal is to influence the life cycle. An effective marketer tries to extend the growth stage in order to maximize revenue and profits and to extend the maturity stage in order to fund the development and introduction of new products.
Apple’s iPod Life-Cycle Strategies
It is easier to understand the complexity of the product life cycle in the context of a real-life example. The total sales of Apple’s iPod across all models follow a classic product life-cycle curve (see Figure 1, below).
Remember, these data include all models of iPods. One strategy that Apple employed to increase growth was to introduce new models often. The new models had fairly similar functions but offered significantly different styling. This drove multiple sales to the same buyer. A buyer was less likely to say, “I already have an iPod,” than to say, “I have an iPod Classic but I want an iPod Nano.” From the initial launch in October 2002 through 2007, Apple introduced five major iPod models, with multiple versions of each. The graph below shows the sequence of releases, with large dots representing the initial release of each new model. In September of 2008 and 2010, Apple released new versions of three different iPod models at the same time.
Apple’s rapid product releases kept it on the cutting edge of design and made it difficult for competitors to take market share during the product’s growth stage. In September 2006, Apple CEO Steve Jobs reported that iPods held 75.6 percent market share.
Throughout the growth period Apple chose not to sell old versions of new devices. Once the company introduced the third generation of the iPod Nano, it stopped selling new second-generation iPod Nanos (though it did still offer refurbished versions of the older products). This allowed the company to quickly make the older versions obsolete, which drove new sales and reduced the ongoing support costs for older models.
When companies talk about “cannibalizing” their market, they mean that one product takes market share from another. In effect, one of the company’s products is eating the other product’s market share. Each new model of the iPod took market share from its predecessors, but collectively the iPod products dominated their market. The greatest cannibal of all in the Apple story is the iPhone, which was first released in June 2007.
The Smartphone Product Life Cycle
A smartphone is a mobile phone that performs many of the same functions as a computer. Prior to the introduction of the smartphone, most people used cell phones—which are now referred to as “feature phones.” Feature phones provide phone and text capabilities but lack an operating system that can support the more advanced capabilities of today’s smartphones.
Early smartphones saw broad adoption in Japan in 2001, but mass adoption of smartphones did not reach the U.S. until business users fell in love with the Blackberry in 2003. Today, smartphones from a range of providers use primarily Google’s Android operating system, Apple’s iOS, or Microsoft Mobile.
Global sales of smartphones have grown rapidly, as shown in Figure 3, below.
Marketers are using many different strategies to drive the growth of smartphones, but perhaps the greatest impact has been the opening of the technology platform to allow other vendors to offer applications for them. Apple, Samsung, Microsoft, and other players have not tried to imagine every possible use for a smartphone and build it themselves. Instead they have created the technology infrastructure and an open marketplace for applications. Programmers can develop applications that can run on any phone, and smartphone owners can select and buy the apps that are of interest.
Through this broad range of applications, the smartphone brings together a number of different functions on one device. Before the first release of the smartphone, many people carried a feature phone to answer calls and a personal digital assistant to manage email and calendars. With the smartphone, these two functions came together, and as the device has matured, it has taken over many other tasks that were formerly performed on a separate device.
Adoption of smartphones has had tremendous impact on the product life cycle of a range of other products. When Apple introduced the iPhone in 2007, the company was cannibalizing its market for iPods. Today, most Apple customers play their media on a phone rather than on a separate media-dedicated device. There are still sales of iPods, but the company, in effect, initiated the decline of the market with its own introduction of the iPhone—a market in which it had more than 75 percent market share.
The markets for digital cameras (especially the low-end models) and personal navigation systems (GPS systems) have also been impacted. The product life-cycle graph for digital camera purchases, shown in Figure 4, below, shows a striking resemblance to that of the iPod.
While smartphone cameras have lagged behind digital cameras in terms of features and performance, they provide two distinct benefits:
- The smartphone adds the camera to an existing device that the user already carries with him
- The smartphone makes it easier to use and share photos through other applications on the phone
Smartphones are a dominant factor in the product life cycle of digital cameras, iPods, and a number of other products.
Lessons from the Smartphone Life Cycle
This example shows some benefits of considering the product life cycle in marketing strategies but also some significant limitations.
The product life cycle is not forward looking. At any point on the graph, a marketer can see what has already occurred but not what is ahead. In planning a product strategy, it is important to understand the past sales performance of the product and the industry broadly, but the role of marketing is to shape future performance, and the product life cycle doesn’t offer many tools to inform that proactive work.
The product life cycle can focus a marketer on a defined set of products and competitors in the current market—but miss broad trends or innovations in adjacent markets and products. A marketer looking for the next feature to add to a digital camera to extend the maturity phase could easily miss the impact that the smartphone would have on the digital camera market. We can learn from Apple’s description of a product marketing manager position in its own company: One of the product marketing manager’s responsibilities is to “closely follow emerging technology, consumer, and societal trends and make recommendations for how products will leverage or fit into those emerging trends.” This broad view is critical to successful marketing.
Finally, this example demonstrates the importance of creating a diverse set of products. When the iPod lost market share to the iPhone, Apple won. Other companies that have lost market on account of the transition to smartphones—Nikon and Canon in cameras, Garmin in navigation devices, etc.—have not fared as well.
Licenses and Attributions
CC licensed content, Original
- Reading: Challenges in the Product Life Cycle. Provided by: Lumen Learning. License: CC BY: Attribution