Product Life Cycle

Question 1

What is the Product Life Cycle?

Answer 1

Theoretical model which describes/predicts stages product goes through during its life

Question 2

Using the Product Life Cycle Model can help:

Answer 2

• Forecast sale trends
• Market targeting and positioning
• Analyse & manage product portfolio
• Focus investment in products

Question 3

5 stages in the Product Life Cycle:

Answer 3

1) Development
2) Introduction
3) Growth
4) Maturity
5) Decline

Question 4

Development stage:

Answer 4

• New product development/ NPD
• Often complex
• Absorbs significant resources
• May not be successful
• May involve long lead time before sales achieved

Question 5

Introduction stage:

Answer 5

• New product launched
• Usually low sales
• Low capacity utilisation & high unit costs
• Heavy promotion to make consumers aware of product
• Usually negative cash flow

Question 6

Strategy at the introduction stage:

Answer 6

• Aim = encourage customer adoption
• High promotional spending to create awareness and inform people
• Either skimming or penetration pricing
• Limited, focused distribution
• Demand initially from ‘early adopters’

Question 7

Growth stage:

Answer 7

• Much faster growing sales
• Product gains market acceptance
• Unit costs fall with economies of scale
• Market grows, profit rise but attracts entry of new competitors
• Cash flow may become positive

Question 8

Strategies in the growth stage:

Answer 8

• Promote brand awareness
• Intensive distribution - many new outlets
• Market penetration
• Wider target customer base
• Improve product - new features, improved styling, more options

Question 9

Maturity stage:

Answer 9

• Slower sales growth as rivals enter market = intense competition + fight for market share
• Low unit costs = very efficient
• High profits for those with high market share
• Weaker competitors start to leave market
• Prices start to fall
• Cash flow should be strongly positive (less need for investment & marketing)

Question 10

Strategies for mature products:

Answer 10

• Manage capacity & production
• Promotion focuses on differentiation
• Intensive distribution
• Adopt extension strategies: attract new, late users, develop new uses, reposition in market

Question 11

Decline stage:

Answer 11

• Falling sales
• Market saturation
• Rapid fall in profits & weak cash flow
• More competitors leave market
• Excess capacity & rising unit costs

Question 12

Reasons why products enter the decline stage?

Answer 12

• Technological advance
• Changes in consumer tastes and behaviour
• Increased competition
• Failure to innovate and develop product

Question 13

Strategies for the decline stage:

Answer 13

• Maintain market share of what is left
• Minimise marketing spend
• Cut prices to stay competitive
• Support loyal customers

Question 14

Criticisms of the Product Life Cycle Model:

Answer 14

• Shape and duration of the cycle varies from product to product
• Strategic decisions can change life cycle
• Hard to know precisely where product is in its life cycle
• Length cannot be reliably predicted - maturity phase can last long time!
• Decline not inevitable