Product Analysis:

Intro

Product life cycle

Product portfolio

Branding

Product life cycle

Product life cycle refers to the different stages of a product’s limited life in terms of sales and profits/cash flows. Typically, there are 5 stages: development, introduction, growth, maturity and decline.

Sales/profit saturationextension

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O------------------------------------------------------------------------------------------------ Time Development introduction Growth Maturity Decline-

The product life cycle chart shows the progress of a product in terms of sales and profits/cash flows .

Development

• During the development stage, the product is being researched , designed, developed and finally launched into the market. A large number of new products never progress beyond this stage.

• During this stage, costs will be incurred by the firm in research and development but no sales will be made. This means cash flow and profit will be negative.

Introduction stage

• Following its development, a product is introduced onto the market.

• During this stage, there is slow growth in sales as a new product takes time to be accepted by customers. However there will be expensive promotion in order to make the consumers accept the product.

• This means that during this stage there will be still some loss or negative cash flows.

Growth stage

• In the growth stage, sales increase rapidly. • Cash flow and profits start to turn positive as

sales revenue starts to pay off the costs. • However, more money must be spent on

product improvement, promotion and distribution to attract more customers. Therefore profits will not be high

Maturity

• In this phase, the product has reached its peak of sales and is fully established in the market. This can be a long or a short period. The highest point in this stage is the saturation point.

• • Because the product is well known , there will

be less spending on promotion. Therefore, this stage will be at the most profitable for the firm.

Decline

• In the decline stage, sales will begin to go down. This period can be fast or slow. The main causes of the decline of a product can be:

• Changes in taste and fashion, changes in technology, new substitutes, new inventions, etc.

• During this period, profits fall and some producers will try to extend the product life by modifying the product, searching new markets, etc. Because extension strategies may be expensive, some producers may leave the market.

Assignment: P80 Q 1. (a)

• (a) Figure 2 shows a product with 4 years of _______. It is a _________ product . After a short phase of ________, it experienced rapid _______ for ____ years. It is still in the market and may continue to _______ or nearing its ________ stage. A new _____ model could match the illustration.

• Figure 3 shows…

• Figure 3 shows a product which has ____ year of development. It had a short introduction period. After that period it experienced a _____ and tremendous increase in sales for approximately one year. It then decline very fast. This product is likely to be a successfull film or ________ album ……..

Extension strategies

• Extension strategies refer to any method of extending the life of a product at the maturity stage and delaying its decline. Common strategies include:

• Price reductions. Lowering price will tend to increase demand although temporarily.

• New markets. Finding new markets for the current product can extend its life. New markets include new outlets in different regions or countries, new users (sport clothing as fashion wear), etc.

Design. Updating design is another way of extending the life of a product. Car manufacturers regularly update models. New versions of computer games or soft wares are regularly introduced.

Range. A wider range of a product can increase sales. Examples include cereals for breakfast, bank accounts for the young, Lucozade for sportsmen, etc.

Promotion. New advertising campaigns constantly extends the life of many products

Appearance. Changing the format or packaging of a product can extend the life of the product. For example, soft drinks are sold in cans.

Assignment: Hall unit 17 Q2. (a)

• Before 1984, Rachel’s had sold _____ ______, followed by ______ and ________. But 1984 saw the ‘first commercial ……………..’ which is a ________ product from the previous ones. Therefore, it can be argued that the introduction of organic yogurt was an example of ………… product being brought into the market.

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• Extension strategies are used by firms as products reach _______ or _______ stage. They are designed to increase _______ by changing aspects of the product, such as ______ or finding new _______. In this case, yogurt was changed so that it contained less _____ than the original one.

• Therefore, it can be argued that the introduction of fat-free yogurt was an example of _______ _________.

Different life cycles

• Some products have short life span (2-3 years). For example: Windows 95, 98, 2000.

• Others can be longer (more than 25 Years). Examples include: Coca Cola, Kellogg’s cornflakes. Extension strategies are usually used to extend the life of many products.

• Not all products will go through every stage of the life cycle and are withdrawn early. Those with very short life (< 1 year) are called fads.

Uses of product life cycle model

By assessing the stages of life cycle of each product:

A firm can assess how much longer a product will longer contribute to sales and profits.

A firm can also find out how urgent it needs to develop new products as older ones are in decline.

A firm will identify points at which extension strategies may necessary.

A firm can assess the balance of its portfolio (range) of products.Ideally, a firm must have products at all stages of the life cycle.

Limitation of product life cycle

Many products cannot be characterized in terms of life cycle, e.g.Basic foodstuffs, raw materials, etc.

The life cycle of a product cannot be predicted in advance

Variations in marketing effort will affect the duration of life cycle phases.Termination of a product’s life is often a management decision.

Extension strategies can extend the life of a product.

Product diffusion curve

This curve groups the consumers according to how quickly they adopt a product along its life cycle. It splits the consumers into five groups:

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Innovators Early adopters Early majority Late majority Laggards

Innovators are customers who are prepared to take risks to buy a new and therefore unproven product, often to show off. They will buy at the introduction stage of the product.

Early adopters are customers who like to be with fashion but tend to research new products thoroughly before buying. They will buy when growth starts, i.e. after the innovators have tried a product.

The early majority are a bit fashionable but are followers of fashion rather than leaders. They therefore buy after growth has started and in the early stage of maturity.

The late majority tend to be suspicious of new products. They will buy when many people are already buying, i.e. at the later stage of maturity.

Laggards are not concerned about image. They will switch to another product when its price is low or their existing products are obsolete.They even pride in not following fashion They mostly buy in the late maturity or at the decline stage.