Product Life Cycle

Question 1

What is the product life cycle?

Answer 1

A theoretical model that describes the stages a product goes through over its life

Question 2

What can the PLC be used for?

Answer 2

• forecast future sales trends
• help with market targeting and positioning
• help analyse and manage the product portfolio

Question 3

What are the five stages of PLC

Answer 3

Development 
Introduction 
Growth
Maturity 
Decline

Question 4

Development

Answer 4

• often complex and time consuming
• absorbs significant resources
• cost of development often rises as product approaches launch
• may not be successful- high failure rate
• test launch my reduce risk of product failure
• can be a long lead time before sales are achieved

Question 5

Introduction

Answer 5

• new product launched on the market
• likely to be a low level is sales- penetration pricing may help build customer demand
• low capacity utilisation and high unit costs
• usually negative cash flow
• distributors may be reluctant to take an unproven product
• heavy promotion to make consumers aware of the product

Question 6

Growth

Answer 6

• fast growing sales, helped by wider distribution
• rise in capacity utilisation- should lower unit costs
• product gains market acceptance
• cash flow may become positive
• the market grows, profits rise but attracts the entry of new competitors

Question 7

Maturity

Answer 7

• slowed sales growth as rivals enter the market= intense competition + fight for market share
• high level of capacity utilisation
• high profits for those with high market share
• cash flow should be strongly positive
• weaker competitors start to leave the market
• prices and profits fall

Question 8

Decline

Answer 8

• falling sales
• market saturation and/ or competition
• decline in profits and weaker cash flows
• more competitors leave the market
• decline in capacity utilisation- switch capacity to alternative products

Question 9

Extending the PLC

Answer 9

There are a number of strategies available to try to extend the life cycle of a product- particularly one that has generated high sales and profits in growth and maturity stage

Question 10

Extension strategies might include:

Answer 10

Lowering the price
Changing promotion (e.g new promotional message)
Changing the product- re styling and product improvement
Looking for alternative distribution channels
Developing a new market segment
Find new uses for the product
Repositioning the product

Question 11

Criticisms of the PLC

Answer 11

• a theoretical model
• the shape and diagram of the cycle varies from product or product
• it is difficult to recognise exactly where a product is in its life cycle
• length cannot be reliably predicted
• decline is not inevitable