THE PRODUCT LIFE CYCLE & THE PRODUCT DIFFUSION CYCLE

1. TOPIC 4: MARKETING THE PRODUCT LIFE CYCLE& THE PRODUCT DIFFUSION CYCLE IB BUSINESS & MANAGEMENT A Course Companion, 2009

2. PRODUCT LIFE CYCLE • The product life cycle shows how sales are likely to be generated throughout the market life of a product. • Products go through five major stages.

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4. PRODUCT LIFE CYCLEDevelopment • Significant time, money and energy must be spent making sure that a product is ready for market. • Costs will incurred by the business in research and development (R&D) but no sales will be made at this stage. • This means cash flow will be negative.

5. PRODUCT LIFE CYCLEIntroduction • This is when the product is launched. • Focus will need to be on the promotional part of the marketing mix, especially in consumer markets. This involve getting the product onto the shelves and into consumer minds. • In this stage of the life cycle, cash outflows may well be greater than cash inflows to ensure that the launch is successful.

6. PRODUCT LIFE CYCLEGrowth • This is when sales really start to take off. • Different pricing strategies can be used depending on the market and product being sold. • A product based on new technology is often sold at a higher price to start with. • Other products may need to be offered at a lower price to start with in order to attract market share quickly. • In this phase case flow will be turning positive and the product will start to make a profit as promotional costs are being spread over many more units than in the introduction stage.

7. PRODUCT LIFE CYCLEMaturity • In this phase, sales stabilize and the product has reached its level in the market. • Because the product is now well known there will be less spending on promotion and the business can benefit from repeat sales by satisfied customers. • As a result the cash inflows usually exceed the outflows in this stage and it is here that the business can reap the profits of earlier spending.

8. PRODUCT LIFE CYCLEDecline • The final stage of the product life cycle in where sales start to fall, perhaps due to new and better products coming onto the market., • The business can choose whether to the let the product die (if it feels the product can’t be revived) or to pursue some extension strategies to try to prolong the product’s life. • Extension strategies may be expensive. Therefore the business must weigh up how much it is prepared to spend for the chance of future sales.

9. How long is the Product Life Cycle? • Product Life cycles do not have a set duration. • In fast moving markets, such as those based on technology, they may only last a couple of years. • Other products may have a product life cycles lasting decades – board games for instance. • Monopoly was first produced in 1936. It has been modified many times, but the original ideas of the product remains.

10. Extension of the Product Life Cycle • Products like `monopoly` are examples of extension strategies – they try to extend the life of the product and delay or prevent its decline. • Extension strategies can be changes to the product, or any other part of the marketing mix. • They are critical to the long-term success of a business, as the maturity phase is when businesses gain the most net cash inflows and profit. • However, devoting additional resources to a product already in terminal decline will not show a return.

11. Extension of the Product Life Cycle • Perhaps the key issue with extension strategies is the fact that it is not always possible to see exactly which stage of the product life cycle the product is in. • External factors may cause a temporary drop in sales.

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13. PRODUCT DIFFUSION CURVE • A useful extension to the product life cycle is the product diffusion curve. • This groups customers according to how quickly they adopt a new product. • Some people will immediately go out and buy the latest product as soon as it hits the shops, but others will wait a long time before buying new products. • The product diffusion curve splits consumers into five groups.

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15. PRODUCT DIFFUSION CURVEInnovators • These are the first to take the risk of buying a new (and therefore unproven) product. • They will buy in the introduction phase of the product life cycle.

16. PRODUCT DIFFUSION CURVEEarly Adopters • Once the product has been launched and tried by the innovators, the well informed leaders of opinion will buy it. • They will buy in the growth phase of the product life cycle.

17. PRODUCT DIFFUSION CURVEEarly Majority • Once positive feedback has been received from the early adopters, these more risk-adverse consumers will take the plunge and buy the product. • They will buy in the growth and maturity phase of the product life cycle.

18. PRODUCT DIFFUSION CURVELate Majority • These consumers are more skeptical and will only buy a product once most others already have it. • They will buy in the maturity phase of the product life cycle.

19. PRODUCT DIFFUSION CURVELaggards • These are consumers who are happy to keep using technology and may only switch to the new product, once their old product becomes obsolete. • They will buy in the maturity or decline phase of the product life cycle, if at all.

20. MARKETING & THE PRODUCT LIFE CYCLE • Different groups will require different marketing strategies to entice them to make a purchase. • Linking the groups with the different stages of the product life cycle allows a business to maximize sales by appealing to the different nature of consumers at different stages.