Product Life Cycle

1. Product Life Cycle • Product Life Cycle (PLC): • Every product goes through a life cycle from development to decline • Each life cycle is different • Some products have longer lifecycles than others • Some companies are very successful in extending lifecycles

2. Product Life Cycle • The Stages of the Product Life Cycle: • Development • Introduction/Launch • Growth • Maturity • Saturation • Decline • Withdrawal

3. Product Life Cycle Sales Development Introduction Growth Maturity Saturation Decline Time

4. Product Life Cycle • The Development Stage: • Initial Ideas – possibly large number • May come from any of the following – • Market research – identifies gaps in the market • Monitoring competitors • Planned research and development (R&D) • Luck or intuition – stumble across ideas? • Creative thinking – inventions, hunches? • Futures thinking – what will people be using/wanting/needing 5,10,20 years hence? • At this stage there are high costs and no revenue – therefore the company is making a large loss

5. Product Life Cycle • Introduction/Launch: • Advertising and promotion campaigns • Target campaign at specific audience? • Monitor initial sales • Maximise publicity • High cost • Low sales • Firm still making losses • Length of time – type of product

6. Product Life Cycle • Growth: • Increased consumer awareness • Sales rise • Revenues increase • Costs - fixed costs/variable costs, profits may be made • Monitor market – competitors reaction?

7. Product Life Cycle • Maturity: • Sales reach peak • Cost of supporting the product declines • Ratio of revenue to cost high • Sales growth likely to be low • Market share may be high • Competition likely to be greater • Price elasticity of demand? • Monitor market – changes/amendments/new strategies?

8. Product Life Cycle • Saturation: • New entrants likely to mean market is ‘flooded’ • Necessity to develop new strategies. • Sales and profits falling. • Decline and Withdrawal: • Product outlives/outgrows its usefulness/value • Fashions change • Better products appear • Sales decline • Cost of supporting starts to rise too far • Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?

9. Product Life Cycle • Extending the life cycle • Diversification – have core product but introduce new flavours/styles etc. • Innovate – use new technology to enhance the product • Change flavour • Repackage • Advertise to appeal different audience • Re-launch – product that have been withdrawn can make comebacks if sold right e.g skateboards, yoyos

10. Product Life Cycle Sales Effects of Extension Strategies Time

11. Product Life Cycle • Cash Flow and the Product Life Cycle • During the development stage cash flow is going to be NEGATIVE. Money has to be paid out for equipment, wages etc but no money is coming in. • During the launch stage cash flow is still NEGATIVE. More money is being paid out than is coming in (as sales are very low at the moment).

12. Product Life Cycle • Cash Flow and the Product Life Cycle • During the growth stage cash flow may turn from NEGATIVE to POSITIVE. Lots of money is coming in but there are many outgoings because the firm has to continue to promote the product and may need to expand production and its workforce. • During maturity/saturation and decline the cash flow will be POSITIVE. The company spends little money on promoting it. It doesn’t need to expand production but sales are still coming in. Only during the decline stage will sales be so low that cash flow might be NEGATIVE.

13. Product Life Cycle PLC and Cash Flow Sales/Cash Flow PLC Positive Cash Flow Time Negative Cash Flow

14. Product Portfolio Analysis • Product Portfolio is the range of products a company has in development or available for consumers at any one time. • The Boston Matrix is a means of analysing the product portfolio and informing decision making about possible marketing strategies. It was developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968

15. The Boston Matrix Market Growth Problem Children Stars High Dogs Cash Cows Market Share Low High

16. The Boston Matrix • Stars • Products in markets experiencing high growth rates with a high or increasing share of the market. • Likely to be in the growth stage of product lifecycle so costs of advertising and machinery could still be high. • Potential for high revenue and profit in the future but not in the present.

17. The Boston Matrix • Cash Cows: • High market share • Low growth markets – maturity stage of PLC • Low cost support – little spent on advertising. • High customer loyalty. • High cash revenue – positive cash flows

18. The Boston Matrix • Dogs: • Products in a low growth market • Have low or declining market share (decline stage of PLC) • Associated with negative cash flow • May require large sums of money to support • Company may drop them soon

19. The Boston Matrix • Problem Child: • Products having a low market share in a high growth market • May have potential but needs money spent to develop them • May produce negative cash flow • Potential for the future or ditch the product?

20. Product Portfolio Analysis/Boston Matrix • Advantages: • The company knows at what stage of the product life cycle its products are • It will know whether the products are dogs, stars, cash cows or problem children • It will be able to understand the levels of revenue the products should be generating • Cost to the business may be determined.

21. Product Portfolio Analysis/Boston Matrix • Advantages: • The likely level of advertising for the products will be understood • The company will be able to see if it needs to develop any new ideas • Likewise the company will be able to know if it needs to get rid of any products

22. Questions • 1. Answer A • Comments • A correct – the costs of development are high and there are no sales as the product has not been launched. • B incorrect – a positive cash flow may be evident as sales are increasing and may outweigh any other supporting costs such as marketing. • C incorrect – sales are likely to outweigh any supporting costs. • D incorrect – support may be minimal so costs are low despite a falling sales trend. • 2. Answer B • Comments • A incorrect – this is an activity used to support an extension strategy. • B correct – this is an activity designed to adapt the product itself. • C incorrect – this would be the development of a completely new product. • D incorrect – this would not necessarily extend the sales or life of the product.

23. Questions • 3. Answer D • Comments • A incorrect – they may be cash cows, problem children or, indeed, dogs. • B incorrect – the 25 products may not all be in the same market or in markets with fast growth. • C incorrect – despite being a star it may have lower sales levels than, say, a cash cow product. • D correct – this is one feature of a star product. • 4. • Diversification • Innovate • Change flavour • Repackage • Advertise to appeal different audience • Re-launch

24. Questions • 5. • To stay ahead of the competition in order to maintain market share. • To re-launch the brand to remind consumers of the brand’s existence. • To develop the range in order to meet changing market needs and fashions. • To introduce the product to a new segment of the market or a younger audience. • To prevent the product from being withdrawn due to a lack of sales.