Product Flashcards
Product
A good or service exchanged for money. Can be tangible or intangible
Product life cycle
A theoretical model which describes the stages that a product goes through over time
The 4 key stages in the product life cycle
Introduction, growth, maturity, decline
Product life cycle: Introduction
Researching, developing and then launching the product.
Sales will initially be slow
Promotion will be heavy (informative style)
Cash flow could become an issue
Penetration pricing may be used
Product life cycle: Growth
When sales are increasing at their fastest rate.
Sales are increasing quickly
Competitors become interested
High promotional spending continues (persuasive style)
Changes to the product may be made
More distribution of the product
Product life cycle: Maturity
Sales are near their highest, but the rate of growth is slowing down. E.g. new competitors
Weaker rivals will leave the market
Some rivals will remain leaving the business needing to defend its position
Competitive pricing might be adopted
Further improvements to the product might be made
Cash flow is likely to be positive
Product life cycle: Decline
Final stage of the cycle, when sales begin to fall
Technological advances, economic conditions and fashion ‘fads’ may all lead to the declining stage
Prices may be drastically reduced to sell off any remaining stock (cost-plus with a small %)
Distribution may be limited to a smaller number of stores
Definition of extension strategy
Strategy to prolong the life of a product
Extension strategy: advertising
Try to gain a new audience or remind the current audience
Extension strategy: price reduction
More attractive to customers
Extension strategy: adding value
Add new features to the current product
Extension strategy: explore new markets
Sell the product in new geographical areas or creating a version targeted at different segments
Extension strategy: new packaging
Brighten up old packaging or subtle changes
Pros of the product life cycle
Help with planning. Marketing mangers can check which stage they’re currently in and make changes to market strategy.
Helps managers avoid the pitfalls of the different stages. By comparing similar products at similar stages in their life cycle, they can spot trends before they occur, so they can prepare accordingly.
Cons of product life cycle
Too clean a picture. Sometimes products sales might never rise above the introduction, or it may enter into decline just before going on a subsequent rise. This can sales managers to be rigid in their strategies, as they expect the sales volume to follow what’s expected.
Product life cycles can be self fulfilling. Each stage has a set of recommended actions. Consequently, when a product begins to behave as if its declining, managers might decide to discontinue the product because that’s the protocol. Meanwhile it could be the product only dipping in sales, as a result of economic conditions, which Will eventually lift.
