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PRODUCT LIFE CYCLEMANAGEMENT
Chapter 7
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Product Life Cycle
The life cycle refers to the period from
the products first launch into themarket until its final
withdrawal and it issplit up in phases
Can help a company to understandand realize when it is time to
introduce
and withdraw a product from a market,its position in the market
compared tocompetitors, and the products success
or failure
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Five major steps or phases
Product development, Product introduction,
Product growth, Product maturity and finally
Product decline
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Product Life Cycle Graph
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PRODUCT DEVELOPMENT
PHASE
Product development phase begins when
a company finds and develops a newproduct idea.
This involves translating various pieces
of information and incorporating them intoa new product.
A product is usually undergoing severalchanges involving a lot
of and time duringdevelopment, before it is exposed to
target customers via test markets.
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PRODUCT DEVELOPMENT
PHASE
Sales are zero and revenues arenegative. It is the time of
spending withabsolute no return
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INTRODUCTION PHASE
Includes the product launch with itsrequirements to getting it
launch insuch a way so that it will have
maximum impact at the moment ofsale
Large expenditure on promotion andadvertising is common, and
quick butcostly service requirements are
introduced.
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INTRODUCTION PHASE
Large expenditure on promotion and
advertising is common, and quick butcostly service requirements
areintroduced
Distribution arrangements areintroduced.
A company must be prepared to spenta lot of money and get only a
smallproportion of that back
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INTRODUCTION PHASE
Pricing is something else for acompany to consider during this
phase
The pricing policy should be moreaggressive so that the product
canbecome competitive
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GROWTH PHASE
The company must show all theproducts offerings and try
todifferentiate them from the competitors
ones A frequent modification process of the
product is an effective policy to
discourage competitors from gainingmarket share by copying or
offeringsimilar products
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GROWTH PHASE
The time to develop efficiencies andimprove product availability
andservice.
Cost efficiency and time-to-marketand pricing and discount
policy are
major factors in gaining customerconfidence.
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MATURITY PHASE
The market becomes saturated withvariations of the basic
product, and allcompetitors are represented in terms
of an alternative product The period of the highest returns
from
the product.
New brands are introduced even whenthey compete with the
companysexisting product and model changesare more frequent
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MATURITY PHASE
Pricing and discount policies are oftenchanged in relation to
the competitionpolicies
Promotion and advertising relocatesfrom the scope of getting
new
customers, to the scope of productdifferentiation in terms of
quality andreliability.
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DECLINE PHASE
The time to start withdrawingvariations of the product from
themarket that are weak in their market
position
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ANALYSIS OF PRODUCT
LIFE CYCLE MODEL
There are some major product life cycle
management techniques that can beused to optimize a products
revenuesin respect to its position into a market
and its life cycle.
Are mainly marketing or management
strategies that are used by mostcompanies worldwide and include
theknow-how of product upgrade,
replacement and termination
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Criticism of product life cycle
a. The shift changes in the demand ofa product along a period of
time makesthe distinction of the product life cycle
phase very difficult, the duration ofthose almost impossible to
predict andthe level of sales of the product
somewhat in the realm of theimagination.
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b. There are many products that do notfollow the usual shape of
the productlife cycle
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Criticism of product life cycle
c. The product life cycle does notentirely depend on time. It
alsodepends on other parameters such as
management policy, companystrategic decisions and market
trends.These parameters are difficult to be
pinpointed and so are not included inthe product life cycle
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Product Life cycle analysis
methods
Collection of information about theproducts behavior over at
least a periodof 3 5 years (information will include
price, units sold, profit margins, return ofinvestment ROI,
market share andvalue).
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Product Life cycle analysis
methods
Analysis of competitor short-termstrategies (analysis of new
productsemerging into the market and
competitor announced plans aboutproduction increase, plant
upgradeand product promotion).
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Product Life cycle analysis
methods
Analysis of number of competitors inrespect of market share.
Collection of information of the life
cycle of similar products that will helpto estimate the life
cycle of a newproduct.
Estimation of sales volume for 3 5years from product launch.
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Product Life cycle analysis
methods
Estimation of the total costs comparedto the total sales for 3 5
years afterproduct launch (development,
production, promotion costs). Theestimate should be in the range
of 4:1in the beginning to 7:1 at the stage
where the product reaches maturity.
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PRODUCT CANNIBALISM
Product cannibalization occurs when acompany decides to replace
anexisting product and introduce a new
one in its place, regardless of itsposition in the market (i.e.
theproducts life cycle phase does not
come into account)
Due to newly introduced technologies
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The trick in cannibalization is to knowwhen and why to implement
it, sincebad, late or early cannibalization can
lead to bad results for a companysales
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UNFAVORABLE
CANNIBALIZATION
The new product contributes less toprofit than the old one:
The economics of the new product
might not be favorable:
The new product requires significant
retooling: The new product has greater risks:
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DEFENSIVE CANNIBALIZATION
STRATEGIES
Cannibalize before competitors do: Introduction of
cannibalization as a
means of keeping technology edge
over competition
Management of cannibalization rate
through pricing: Minimization of cannibalization by
introducing of the new product to
certain market segments
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PRODUCT LIFE CYCLE IN RESPECT TO
THE TECHNOLOGY LIFE CYCLE
As a new technology matures so is theproduct or service that
uses thistechnology.
The change that occurs during atechnology life cycle has a
uniquereflection on the customers and so onthe product life
cycle.
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Change in customers as
technology matures
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