All products and services have a certain life span which is measured by the chronological history of sales from the launch of the product until its withdrawal from the market. For the development of effective marketing strategies, an understanding of the different characteristics of the product life cycle stages is absolutely crucial. Based on this understanding, marketing implications can be derived. In the following, each PLC stage is explained in detail. After investigating the characteristics of the product life cycle stages, the marketing activities that accompany each stage are explicated.
The 4 Product Life Cycle Stages (PLC)
After the launch of a product, there will be times when sales grow, times when they will be relatively static and other times when they will decline. This does in particular apply when the product is superseded by a new product which satisfies customer needs better. Consider for instance consumer preference for CDs over vinyl records, or the disappearance of launderettes in town centres as a result of the introduction of affordable washing machines. The characteristics of the product life cycle stages help us to explain the development of sales that can be observed over the lifetime of a product. In addition, the model aids in determining the required marketing activities and the level of support that is needed to secure the future success of the product.
There are four main stages in the product life cycle, as you can see in the figure below. The characteristics of the product life cycle stages are discussed in greater detail along with their implications on the appropriate marketing strategy.
Characteristics of the Product Life Cycle Stages and Marketing Implications
The PLC describes the four key stages that a product is likely to experience between its launch and its disappearance from the market. The characteristics of the product life cycle stages are discussed below.
When a product is launched on the market, its sales will begin to grow slowly and profit, if any, will be rather small. This can be attributed to the lead time which is required for marketing efforts to take effect. At this stage, the product is new and untested, which implicates that potential customers may be unwilling or reluctant to purchase it. A second reason for rather low profitability at the introduction stage is that the company is unlikely to be making full use of its production capacity. As a result, it will be unable to benefit from the economies of scale that are associated with higher levels of production. The low profitability does also come from the need to recover development and launch costs. The main priority of the firm at the introduction stage is to generate widespread awareness of the product in its target segment and to stimulate trial. This is especially the case for new-to-the-world products, which are truly innovative by nature. In this case, primary demand will first have to be established. The company should focus its marketing activities on those buyers who are readiest to buy: innovators, which are usually to be found within the higher-income groups. This behaviour was evident for instance when the manufacturers of the first smartphones targeted B2B customers when the products were first introduced to the market.
There are various marketing strategies that can be used for introducing a new product to the market. Two pricing strategies are available. The choice between the two strategies depends on the nature of the product and the level of competition:
- Price skimming involves charging a high initial price, before reducing the price gradually to “skim” each potential target group in the market as the market grows.
- Price penetration involves setting a low price to enter the market quickly and capturing market share, before adjusting the price to increase profits once the market has grown.
You can read more about the alternative pricing strategies here.
Actually, a significant share of new products fails to progress beyond the introduction stage of the PLC. This is often caused by a lack of understanding of the characteristics of the product life cycle stages and their implication on the required marketing strategies. At the introduction stage, this failure is worst: Customers who are dissatisfied with their first purchase of a product or a brand will be unlikely to make repeat purchases and recommendations, which are in turn essential for sales increases. Therefore, it is absolutely crucial to ensure that the products provide valuable benefits to the customer and superior customer value if survival and growth are to follow. The most important point is to get it right the first time.
If the product meets existing market needs or stimulates previously untapped needs, it will enter the growth stage. In this stage, sales will usually lift off. This point is called the take-off point. Profits are generated as sales revenues increase faster than costs. But competitors will also have had time to assess the product, predict its impact on the market and potentially respond with a similar or improved version of the offering. As a result, the total size of the market tends to grow, and the new competitors can increase their sales by attracting new customers rather than undercutting each other on price. An increase in the number of distribution outlets tends to go in hand with this.
When a the sales growth of the product slows down, the maturity stage is reached. During this stage, there is a tendency for companies to capture customers from their competitors by undercutting each other on prices and increasing promotional efforts. As competitive rivalry intensifies, the weaker competitors are forced out of the market. This point is known as the shake-out point. Thus, only the strongest players remain to dominate the more stable market. The maturity stage does usually last longer than the previous stages, but also poses the strongest challenges to the marketing: the firm will try to prevent the sales to decline, while maintaining profitability. The problem at this stage is heavy price competition and resulting increased marketing expenditure from all competitors in order to retain brand loyalty.
Certainly, there are some famous brands and products that are still in the maturity stage after thirty years and more. For instance, consider Mars’ bars or Coca-Cola. Although these products have changes only very little since their launch, they are still highly successful or even more successful than ever. Other products survive by evolving to meet changing consumer needs.
During the maturity stage, the firm can choose from a number of alternative strategies to ensure the future success of the product. These strategies range from innovating the market (market development) over modifying the product (product development) to altering the marketing mix (marketing innovation). These strategies are discussed in more detail here.
If the characteristics of the product life cycle stages and their marketing implications are understood properly, the product may have made it to the final stage in the PLC: the decline stage. Usually, the firm will have tried to keep the product as long as possible in the maturity stage. However, once the sales of a product start to fall or profitability can no further be maintained, the decline stage is reached. This does often happen as a result of the market entry of substitute products which satisfy customer needs better than the previous product.
There are several alternative strategies available for handling the decline stage appropriately.
- Milking or Harvesting: When this strategy is used, the product receives only little or no marketing support. The firm aims to maximize the life of the product while generating the cash and the time required to establish new products. In addition, the slow decline of the product provides the firm with sufficient time to adjust to the declining cash flow and to find alternative means of generating income.
- Phased Withdrawal: Unlike under the milking approach, where the product could in theory continue indefinitely, phased withdrawal involves setting a hard cut-off date for the product. Before the cut-off date, there may be interim stages at which the product is either pulled form certain channels of distribution or certain geographic areas. Phased withdrawal provides the advantage of enabling the firm to plan the introduction of replacement products. However, it can be a source of dissatisfaction to customers, who may not like the sudden disappearance of their favoured product. A typical example of the phased withdrawal strategy can be found in the automotive industry: car manufacturers normally set hard cut-off dates to existing products, so that both dealers and the public are notified of product withdrawals and new product launches.
- Contracting out or Selling: Loyal users of a product can be retained when the brand or the rights to produce and sell the product are handed on to a niche operator or by subcontracting. Many smaller firms use this strategy since they are flexible enough to offer the product’s market a satisfactory return. Each party involved in this strategy benefits from the deal: the originating firm can dispose profitably of a product it no longer wants, consumers can keep buying products they desire, and the subcontractor or buyer can gain the benefits of a brand they could never have established on their own.
Wrap-Up: Characteristics of the Product Life Cycle Stages and their Marketing Implications
The table below provides a summary of the characteristics of the product life cycle stages and the appropriate marketing responses for each stage.
|Product Life Cycle Stage|
|Marketing emphasis||Create product awareness
Encourage product trial
|Establish high market share||Fight off competition
|Minimize marketing expenditure|
|Product strategy||Introduce basic products||Improve features of basic products||Design product versions for different segments||Rationalize the product range|
|Pricing strategy||Price skimming or price penetration||Reduce prices enough to expand the market and establish market share||Match or beat the competition||Reduce prices further|
|Promotional strategy||Advertising and sales promotion to end-users and dealers||Mass media advertising establish brand image||Emphasize brand strengths to different segments||Minimal level to retain loyal customers|
|Distribution strategy||Build selective distribution outlets||Increase the number of outlets||Maintain intensive distribution||Rationalize outlets to minimize distribution costs|