Product Life Cycle (PLC)
Products have a life: they are born, grow, reach a peak, and die. This biological concept of the life and death of organisms is well structured in product marketing applications with the product life cycle (PLC) conceptualization. Every product or service is first invented and introduced to the market (the introduction). If the product is successful, it grows by generating sales for the company (growth) and then reaches maturity (maturity). When the sales and especially profit generated by the product start to fall, the product ends its life (decline). The product’s life is highly dependent on making the right marketing decisions at every stage of its life, as illustrated by the red lines in Fig. 3.4. The product’s life will eventually be determined by its ability to generate more sales and hence profit, which is also related to the diffusion model described above. Companies need to focus on innovators and early adopters when first launching new products on the market. Most sales eventually come from the early majority and late majority in the growth and maturity stages as indicated in Fig. 3.4. In decline, the focus is on laggards. Product diffusion models based on consumer risk-taking and adoption behaviors provide marketers with a market segmentation approach through the PLC.
During the introduction stage, profit is negative because of the high investment costs for innovation and development (see Fig. 3.1). At this stage, however, the most important strategic marketing focus should be creating consumer awareness. Once the product starts to maximize sales capacity by reaching the early majority, it crosses the chasm to achieve growth level and the profit starts to soar. This is the stage where every product wants to stay as long as possible. Such growth will eventually attract competitors. There will always be newcomers in the product market, which can become dominated by fierce competition. At the growth stage, therefore, the company marketing strategy should focus on product differentiation. When the product reaches the maturity stage, many other companies will be producing the same or a similar product, using the same technology, so demand eventually slows down, with a consequent reduction in sales numbers and shrinking profit margins. The company should focus on product availability in addition to product differentiation to remain ahead of the increasing competition. This also might be the right time for the company to introduce a new product in the same line to extend the life of its product. As the product is slowly approaching the end of its life, selling becomes more important. After the maturity stage, sales and profit slow down and the product moves into the decline stage (see Fig. 3.4). The product gets old as new innovations, models, and products on the market become more popular. Thus the company needs to follow innovations and new development closely to secure the long-lasting profitability of its own product. If incumbents come up with a better new technology, they eventually gain a competitive advantage over the company’s product. When consumers begin to think that the company’s product is not performing well compared to new products introduced by its competitors, our company’s competitiveness will be limited and it will consider discontinuing its product. In this decline stage, the company should focus on providing best value by lowering price, and on getting rid of extra inventory costs created by lost sales by adjusting the dying product’s price. At this stage, value adjustment is at the heart of marketing strategies. During the maturity and decline stages, the company needs to start developing the next generation of products using the feedback gained from mainstream markets (see Fig. 3.4).
However, it is important to emphasize that every product follows a different path and has its own unique PLC. Some products stay in the market longer than others and are readily accepted by consumers; others require extra consumer learning. Technologically complex products such as consumer electronics require more sales support and consumers need more time to adapt to the new product in order to enjoy its suggested benefits, so their introduction stages last longer (see the first graph in Fig. 3.5). For new convenience or frequently purchased products, on the other hand, consumers need less help to understand their quality and value, so their introduction stage can be shorter (see the second graph in Fig. 3.5). Products that are essentially a fad, which includes many fashion items, only have an introduction and decline (see the third graph in
Fig. 3.5 Various product life cycle patterns
Fig. 3.5). They grow very fast at the introduction stage and die quickly without showing any real growth and maturity stages.
Every product’s life should be predicted so that the company can determine its product development and hence product line extension schedules. Once the company knows when products will start declining and dying, they can easily determine the best time to introduce new products to extend the product’s life cycle in a bid to reach sustainable sales and profitability. If this is not achieved, the company’s life will be short as well.