The product life cycle theory was propounded by economist Raymond Vernon in 1966. By using this theory, Raymond Vernon desired to explain the various stages a product undergoes after it enters the marketplace. It explains the reasons that determine the development, maturity and the decrease of a product and how the life cycle periods determine overseas trade.
Product Life Cycle Theory
Raymond Vernon discussed that from the technology of a product to its demise due to too little demand, a product goes through four phases: introduction, growth, maturity and drop. The duration of the periods is not fixed. The period of the merchandise phases depend basically on the demand for the merchandise on the market and, somewhat, the costs of development and the profits that the product generates. If the merchandise remains popular for a long time frame and the costs of production steadily decline, the life span of the product will be much longer. On the other hand, if the costs of creation are too much and the demand is largely limited, then the product will perish sooner. Hence, it is not possible to anticipate the cycle's length of time.
A product life pattern is the typical stages something goes through during its life span. The product life circuit is divided into five different periods, which include the development, introduction, growth, maturity and drop stages of the merchandise. Characteristics for each and every stage differ and in reaction to the various needs of the merchandise as it steps through its life cycle, the market blend (various marketing tactics) used of these stages are different as well. Understanding the merchandise life pattern can help companies and marketing professionals plan a marketing combination to handle each stage totally.
The theory of a product life cycle was initially created in the 1950s to describe the expected life circuit of the product from design to obsolescence, an interval split into the phases of product release, product development, maturity, and decline. The goal of owning a product's life cycle is to increase its value and profitability at each level. Life routine is primarily associated with marketing theory.
DEVELOPMENT STAGE
During the development stage, the merchandise may still be just an idea, along the way of being created or not yet on the market. In this stage, the marketing mixture is in the planning phase, so alternatively than implementing marketing strategies, the product producer is researching marketing techniques and thinking about which efforts the business intends on using to release the merchandise. The marketing mix for this stage includes ways to bring knowing of the product to prospective customers through marketing campaigns and special campaigns.
INTRODUCTION STAGE
This is the main point where something is conceptualized and first brought to market. The purpose of any new product introduction is to meet consumers' needs with a quality product at the lowest possible cost to be able to return the highest level of income. The benefits of a fresh product can be divided into five distinctive parts:
Idea validation, which is when a company studies a market, searches for areas where needs aren't being attained by current products, and will try to think of new products that may meet that require. The business's marketing department is responsible for identifying market opportunities and defining who'll choose the product, what the principal benefits of the merchandise will be, and the way the product will be utilized.
Conceptual design occurs when a concept has been approved and starts to take shape. The business has analyzed available materials, technology, and production capability and motivated that the new product can be created. Once that is performed, more thorough specifications are developed, including price and style. Marketing is accountable for minimal and maximum sales estimates, competition review, and market share estimates.
Specification and design is when the merchandise is nearing release. Last design questions are clarified and last product specs are decided so that a prototype can be created.
Prototype and evaluation arise when the first version of a product is established and examined by designers and by customers. A pilot development run might be made to ensure that engineering decisions made previously in the process were correct, also to establish quality control. The marketing section is really important at this time. It is accountable for developing packaging for the product, conducting the buyer tests through target groups and other responses methods, and checking customer responses to the merchandise.
Manufacturing ramp-up is the ultimate stage of new product intro. This is also called commercialization. This is when the product goes into full production for release to the marketplace. Final checks are created on product trustworthiness and variability.
In the intro stage, sales may be sluggish as the business builds knowing of its product among prospects. Advertising is essential at this stage, so the marketing budget is often significant. The sort of advertising will depend on the product. If the product is intended to attain a mass audience, than an advertising campaign built around one theme may be in order. If a product is customized, or when a company's resources are limited, then smaller advertising campaigns can be used that goal very specific followers. As something matures, the advertising budget associated with it'll most likely shrink since followers are already mindful of the merchandise.
Techniques used to exploit first stages use penetration rates (low costing for swift establishment) as well as "skimming, " costs high at first and then bringing down price after the "early acceptors" have been lured in.
GROWTH STAGE
The growth phase occurs whenever a product has survived its release and is starting to be noticed in the marketplace. At this stage, a corporation can determine if it wants to visit for increased market share or increased profitability. This is the boom time for any product. Production boosts, leading to lower product costs. Sales momentum builds as advertising campaigns target mass media audiences rather than specialized markets (if the product merits this). Competition grows up as knowing of the product builds. Minor changes are created as more responses is accumulated or as new marketplaces are targeted. The goal for any company is in which to stay this phase so long as possible.
It is possible that the merchandise will not be successful at this stage and move immediately earlier decline and right to cancellation. That is a call the marketing personnel must make. It requires to evaluate just what costs the business can tolerate and the particular product's chances for survival are. Tough choices need to be made"sticking with a burning off product can be disastrous.
If the product is doing well and getting rid of it is out of the question, then your marketing division has other obligations. Rather than just building knowing of the product, the goal is to build brand commitment by adding first-time customers and retaining do it again buyers. Sales, discount rates, and advertising all play an important role in that process. For products that are well-established and additional along in the growth stage, marketing options include creating variants of the initial product that appeal to additional viewers.
MATURITY STAGE
At the maturity level, sales development has began to slow and is approaching the stage where the inevitable drop will begin. Defending market show becomes the chief matter, as marketing staffs have to invest increasingly more on campaign to attract customers to buy the product. Additionally, more opponents have stepped forward to challenge the product at this time, some of which may provide a higher-quality version of the product at a lower price. This can touch off price wars, and lower prices indicate lower profits, which will cause some companies to drop out of the market to the product entirely. The maturity stage is usually the longest of the four life cycle stages, which is not uncommon for something to maintain the mature level for several years.
A savvy company will seek to lessen unit costs whenever you can at the maturity stage so that profits can be maximized. The amount of money received from the older products should then be used in research and development to create new product suggestions to replace the maturing products. Operations should be streamlined, cost efficiencies searched for, and hard decisions made.
From a marketing standpoint, experts claim that the right campaign can make more of a direct effect at this stage than at any other. One popular theory postulates that we now have two primary marketing ways of utilize at this stage"offensive and protective. Defensive strategies consist of special sales, campaigns, cosmetic product changes, and other means of shoring up market show. It can also mean quite actually defending the product quality and integrity of your product versus your rivals. Marketing offensively means looking beyond current market segments and wanting to gain brand new-buyers. Relaunching the merchandise is one option. Other offensive methods include changing the price of something (either higher or lower) to appeal to an totally new audience or finding new applications for a product.
DECLINE STAGE
This occurs when the merchandise peaks in the maturity stage and then commences a downward slide in sales. Eventually, revenues will drop to the point where it is no more economically feasible to continue making the merchandise. Investment is reduced. The product can simply be discontinued, or it could be sold to some other company. A third option that combines those elements is also sometimes seen as viable, but involves fruition only rarely. Under this situation, the merchandise is discontinued and stock is permitted to dwindle to zero, however the company provides the protection under the law to supporting the product to another company, which in turn becomes responsible for servicing and preserving the product.
PROBLEMS WITH THE PRODUCT LIFE Circuit THEORY
While the product life routine theory is broadly accepted, it does have critics who say that the idea has so many exceptions and so few rules that it is meaningless. On the list of holes in the theory that these critics focus on:
There is not any set amount of time a product must stay static in any stage; each product is different and steps through the phases at differing times. Also, the four levels are not the same time period long, which is often overlooked.
There is not any real proof that products must pass away. Some products have been seen to go from maturity back to a period of rapid growth thanks to some improvement or redesign. Some claim that by expressing in advance that a product must reach the finish of life level, it becomes a self-fulfilling prophecy that companies subscribe to. Critics say that some businesses interpret the first downturn in sales to imply that a product has reached decline and really should be killed, thus terminating some still-viable products prematurely.
The theory can result in an over-emphasis on new product produces at the expense of older products, when in truth the greater income could possibly be derived from the mature product if just a little work was done on revamping the product.
The theory emphasizes individual products rather than taking bigger brands into consideration.
The theory will not adequately take into account product redesign and/or reinvention.
Example 1>
Explaing the merchandise Life Pattern using examples of hotels at different phases of the life span cycle including details of each hotel and explaining why I believe it is at that stage of the life cycle.
Much like the majority of the things inside our world the merchandise is I considered having its Life Cycle. This cycle starts when a product has been developed (delivered), includes the products performance in the market based on demand as well as sales (life) and ends when there is no longer any demand for the merchandise (fatality). I will try to make clear in detail each one of the five stages of your product's life while concentrating on a hotel and what is the product a hotel offers? The answer is nothing at all else but quality accommodation of course.
Stage one, Product Development.
A hotel when is being built for example the new Hilton Hotel built on Kos Island, it hasn't yet something it can send out in to the market. That is why before it opens and is ready to host guests the management will have to decide what will be the quality of the assistance offered and the sort of rooms they will have (simple rooms, suites, flats, bungalows etc). That is when the business enterprise starts to plan and develop the real product they'll soon show the market. As it is natural since the product does not exist yet, or is not in an ailment to be sold (since the hotel is still being built) the hotel does not have any sales at this time, but the costs required creating the product keep adding up. The hotel will struggle to generate revenue to repay the development costs (labor costs, utilities, building fees etc. ) until it is completed and ready to acknowledge its first guests.
Stage two, Introduction
When a hotel opens for the very first time or develops a fresh package or holiday program and begins to market this new product, this is the initiation level. The renovated Grecotel in Athens, Omonia square; now known as both Fashion hotel is a good example to make clear this stage. If the hotel exposed after it's reconstruction it offered a new product to the marketplace which was mysterious before that, this new strategy had not been yet known nor established on the market what supposed little sales but still lost of development costs having to be protected as well as advertising. The initiation of a fresh product in the market is always accompanied by a period of time before the product becomes proven and known in the market when the sales are low and barely enough to protect the so far gathered costs.
Stage three, Growth
This is the stage in the product's life when it becomes better known in the market and earnings from sales swiftly increase. Once the Euro Disney hotel exposed in Paris is swiftly became very popular among European young families who didn't possess the required resources for a cross Atlantic air travel in order to visit Disney Land in America. This truth and upsurge in its original output offered a great raise to the business's revenue in combo with the ability for better (higher) prices. Since Europeans no longer hat to take an expensive journey to America, European prices could be marginally higher than those in the us. In the level of development the hotel will find making an investment on its market talk about is less expensive although it also enjoys a general growth of the market. Also during this stage major amount of recourses is devoted in the promotion of the merchandise.
Stage four, Maturity
The Grand Brittan Hotel in Athens is a favorite hotel which's product is more developed on the market as it is the most known hotel in Athens. It's difficult to find someone in Greece who has been around Athens and will not know where the particular hotel is or that has not visited it at least once. Any business which the product which is currently in the time of maturity perceives its sales slowly and gradually pausing to develop. That happens because the hotel's product (quality of accommodation) has managed to be accepted by almost all of its targeted market. Furthermore earnings levels of the business enterprise slowly decrease because more resources are necessary for marketing and ad in order to protect the merchandise from competition.
Stage five, Decline
In this last level of a product's life pattern the market begins to shrink, the quantity of sales starts to drop as the merchandise becomes indefinite to potential buyers and revenue drops. A good example of such a product would be a hotel which has lost its attractiveness towards the friends and people see no reason they should go there as there are new greater places and hotels to go to right now. For example the once known and attractive Daphnila Bay hotel on Corfu which as grew older the quality its original product offered is becoming outdated and over shadowed by other new luxuries and modern hotels. In this level the hotel's product should be managed carefully and extreme caution if the business wishes it's product to endure a bit longer for example:
-Trying to reduce a few of the development costs, by reducing stuff or the quality of beverages.
-Offer the product at lesser prices, wishing to entice more friends.
-Approach other cheaper marketplaces like the all inclusive.
Finally, based on the actual fact if the merchandise maintains its success or not, the hotel may determine if it should end its distribution and make an effort to develop something new or continue for as long as the product handles to.
Example 2>
A very good exemplory case of an progressive product = colgate hypersensitive toothpaste.
1. INTRODUCTION
ORGANISATION CONDITIONS
-High Costs
-Inefficient Development Levels
-Cash Requirements HIGH
ENVIRONMENTAL CONDITIONS
-Few or No Competitions
-Limited Product Awareness and Knowledge
-Limited Demand
MARKETING EFFORTS
-Stimulate Demand
-Establish High Price
-Offer Limited Product Variety
-Increase Distribution
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A. INTRODUCTION.
1. MARKETING OBJECTIVE
-successful entry on the market.
2. SALES
-increase sales.
3. CUSTOMERS
-identify customer segments
4. ENVIRONMENT
-Comply With Alternative Regulations
& Accepted Values
5. PRODUCT
-Assure High Quality
6. PRICE
-use cost plus strategy
7. PROMOTIONS
-build product awareness
8. DISTRIBUTION
-build and channels
2. GROWTH
ORGANISATIONAL CONDITIONS
-Smoothing Production
-Lowering Costs
-Operation Efficiencies
-Product Improvement Work
ENVIRONMENTAL CONDITIONS
-Expanding Markets
-Expanded Distribution
-Competition Strengthens
-Prices Soften a Bit
MARKETING EFFORTS
-Cultivate Selective Demand
-Product Improvement
-Strengthen Distribution
-Price Flexibility
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B. GROWTH.
1. MARKETING OBJECTIVE
-gain market share
-increase profitability
2. SALES
-increase / maximize sales level.
3. CUSTOMERS
-determine customer acceptance.
4. ENVIRONMENT
-determine channel replies.
5. PRODUCT
-offer extensions or value added like service.
6. PRICE
-penetrate deeper in to the market
7. PROMOTIONS
-induce trial.
8. DISTRIBUTION
-use selective distribution
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3. MATURITY
ORGANISATIONAL CONDITIONS
A. EARLY MATURITY
-efficient size of operation
-production modification work
-LOW profit
B. Overdue MATURITY
-product standardization
-Decreasing Profits
ENVIRONMENTAL CONDITIONS
A. EARLY MATURITY
-slowing growth
-strong competition
-expanded market
-heightened competition
B. LATE MATURITY
-Faltering demand
-fierce competition
-shrinking range of competitors
-established distribution pattern
MARKETING EFFORTS
A. EARLY MATURITY
-Emphasise Market Segmentation
-Improve Service and Warranty
-Reduce Prices
B. Overdue MATURITY
-ultimate in market segmentation
-competitive pricing
-retain distribution
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C. MATURITY.
1. MARKETING OBJECTIVE
-consolidate market share
-maximize revenue.
2. SALES
-maximize sales.
3. CUSTOMERS
-determine re-purchase rates.
4. ENVIRONMENT
-monitor competitive activities
5. PRODUCT
-diversify the brands or models
6. PRICE
-price conflict with competitors
7. PROMOTIONS
-stress favourable evaluations
8. DISTRIBUTION
-more rigorous distribution
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4. DECLINE
ORGANISATION CONDITIONS
-Permanently Declining Demand
ENVIRONMENTAL CONDITIONS
-Reduction of Competitors
-Limited Product Offerings
-Price Stabilisations
MARKETING EFFORTS
-Increase Principal Demand
-Profit Opportunity Pricing
-Prune and Strengthen Distribution
--------------------------------
D. DECLINE.
1. MARKETING OBJECTIVE
-arrest the market share decrease.
-minimize work/time in marketing expenses.
2. SALES
-retain sales size.
3. CUSTOMERS
-evaluate customer issues.
4. ENVIRONMENT
-search for new opportunities.
5. PRODUCT
-phase out weakened items
6. PRICE
-cut price or offer other incentives
7. PROMOTIONS
-maintain loyalty
8. DISTRIBUTION
-depend on middlman
