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Product Life-Cycle StrategiesComments by Dr. Laukamm
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After
launching the new product, management wants the product to enjoy a long
and happy life. Although it does not expect the product to sell
forever, the company wants to earn a decent profit to cover all the
effort and risk that went into launching it. Management is aware that
each product will have a life cycle, although its exact shape and
length is not known in advance.
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Figure 10.2 shows a typical product life cycle (PLC), the course that a product's sales and profits take over its lifetime. The product life cycle has five distinct stages:
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Not
all products follow this product life cycle. Some products are
introduced and die quickly; others stay in the mature stage for a long,
long time. Some enter the decline stage and are then cycled back into
the growth stage through strong promotion or repositioning.
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The PLC concept can describe a product class (gasoline-powered automobiles), a product form (SUVs), or a brand
(the Ford Explorer). The PLC concept applies differently in each case.
Product classes have the longest life cycles—the sales of many product
classes stay in the mature stage for a long time. Product forms, in
contrast, tend to have the standard PLC shape. Product forms such as
"cream deodorants," "dial telephones," and "cassette tapes" passed
through a regular history of introduction, rapid growth, maturity, and
decline.
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A
specific brand's life cycle can change quickly because of changing
competitive attacks and responses. For example, although laundry soaps
(product class) and powdered detergents (product form) have enjoyed
fairly long life cycles, the life cycles of specific brands have tended
to be much shorter. Today's leading brands of powdered laundry soap are
Tide and Cheer; the leading brands 75 years ago were Fels Naptha,
Octagon, and Kirkman.22
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The
PLC concept also can be applied to what are known as styles, fashions,
and fads. Their special life cycles are shown in Figure 10.3. A style
is a basic and distinctive mode of expression. For example, styles
appear in homes (colonial, ranch, transitional), clothing (formal,
casual), and art (realist, surrealist, abstract). Once a style is
invented, it may last for generations, passing in and out of vogue. A
style has a cycle showing several periods of renewed interest. A fashion
is a currently accepted or popular style in a given field. For example,
the more formal "business attire" look of corporate dress of the 1980s
and early 1990s has now given way to the "business casual" look of
today. Fashions tend to grow slowly, remain popular for a while, then
decline slowly.
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Fads
are fashions that enter quickly, are adopted with great zeal, peak
early, and decline very quickly. They last only a short time and tend
to attract only a limited following. "Pet rocks" are a classic example
of a fad. Upon hearing his friends complain about how expensive it was
to care for their dogs, advertising copywriter Gary Dahl joked about
his pet rock and was soon writing a spoof of a dog-training manual for
it. Soon Dahl was selling some 1.5 million ordinary beach pebbles at
four dollars a pop. Yet the fad, which broke in October 1975, had sunk
like a stone by the next February. Dahl's advice to those who want to
succeed with a fad: "Enjoy it while it lasts." Other examples of fads
include Rubik's Cubes, lava lamps, CB radios, and scooters. Most fads
do not survive for long because they normally do not satisfy a strong
need or satisfy it well.23
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The
PLC concept can be applied by marketers as a useful framework for
describing how products and markets work. But using the PLC concept for
forecasting product performance or for developing marketing strategies
presents some practical problems. For example, managers may have
trouble identifying which stage of the PLC the product is in or
pinpointing when the product moves into the next stage. They may also
find it hard to determine the factors that affect the product's
movement through the stages. In practice, it is difficult to forecast
the sales level at each PLC stage, the length of each stage, and the
shape of the PLC curve.
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Using
the PLC concept to develop marketing strategy also can be difficult
because strategy is both a cause and a result of the product's life
cycle. The product's current PLC position suggests the best marketing
strategies, and the resulting marketing strategies affect product
performance in later life-cycle stages. Yet, when used carefully, the
PLC concept can help in developing good marketing strategies for
different stages of the product life cycle.
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We
looked at the product development stage of the product life cycle in
the first part of the chapter. We now look at strategies for each of
the other life-cycle stages.
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Introduction StageComments by Dr. Laukamm
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The introduction stage
starts when the new product is first launched. Introduction takes time,
and sales growth is apt to be slow. Well-known products such as instant
coffee, frozen orange juice, and powdered coffee creamers lingered for
many years before they entered a stage of rapid growth.
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In
this stage, as compared to other stages, profits are negative or low
because of the low sales and high distribution and promotion expenses.
Much money is needed to attract distributors and build their
inventories. Promotion spending is relatively high to inform consumers
of the new product and get them to try it. Because the market is not
generally ready for product refinements at this stage, the company and
its few competitors produce basic versions of the product. These firms
focus their selling on those buyers who are the most ready to buy.
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A company, especially the market pioneer,
must choose a launch strategy that is consistent with the intended
product positioning. It should realize that the initial strategy is
just the first step in a grander marketing plan for the product's
entire life cycle. If the pioneer chooses its launch strategy to make a
"killing," it will be sacrificing long-run revenue for the sake of
short-run gain. As the pioneer moves through later stages of the life
cycle, it will have to continuously formulate new pricing, promotion,
and other marketing strategies. It has the best chance of building and
retaining market leadership if it plays its cards correctly from the
start.24
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Growth StageComments by Dr. Laukamm
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If the new product satisfies the market, it will enter a growth stage,
in which sales will start climbing quickly. The early adopters will
continue to buy, and later buyers will start following their lead,
especially if they hear favorable word of mouth. Attracted by the
opportunities for profit, new competitors will enter the market. They
will introduce new product features, and the market will expand. The
increase in competitors leads to an increase in the number of
distribution outlets, and sales jump just to build reseller
inventories. Prices remain where they are or fall only slightly.
Companies keep their promotion spending at the same or a slightly
higher level. Educating the market remains a goal, but now the company
must also meet the competition.
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Profits
increase during the growth stage, as promotion costs are spread over a
large volume and as unit manufacturing costs fall. The firm uses
several strategies to sustain rapid market growth as long as possible.
It improves product quality and adds new product features and models.
It enters new market segments and new distribution channels. It shifts
some advertising from building product awareness to building product
conviction and purchase, and it lowers prices at the right time to
attract more buyers.
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In
the growth stage, the firm faces a trade-off between high market share
and high current profit. By spending a lot of money on product
improvement, promotion, and distribution, the company can capture a
dominant position. In doing so, however, it gives up maximum current
profit, which it hopes to make up in the next stage.
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Maturity StageComments by Dr. Laukamm
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At some point, a product's sales growth will slow down, and the product will enter a maturity stage.
This maturity stage normally lasts longer than the previous stages, and
it poses strong challenges to marketing management. Most products are
in the maturity stage of the life cycle, and therefore most of
marketing management deals with the mature product.
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The
slowdown in sales growth results in many producers with many products
to sell. In turn, this overcapacity leads to greater competition.
Competitors begin marking down prices, increasing their advertising and
sales promotions, and upping their R&D budgets to find better
versions of the product. These steps lead to a drop in profit. Some of
the weaker competitors start dropping out, and the industry eventually
contains only well-established competitors.
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Although
many products in the mature stage appear to remain unchanged for long
periods, most successful ones are actually evolving to meet changing
consumer needs. Product managers should do more than simply ride along
with or defend their mature products—a good offense is the best
defense. They should consider modifying the market, product, and
marketing mix.
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In modifying the market,
the company tries to increase the consumption of the current product.
It looks for new users and market segments, as when Johnson &
Johnson targeted the adult market with its baby powder and shampoo. The
manager also looks for ways to increase usage among present customers.
Campbell does this by offering recipes and convincing consumers that
"soup is good food." Amazon.com sends permission-based e-mails to
regular customers letting them know when their favorite authors or
performers publish new books or CDs. Or the company may want to
reposition the brand to appeal to a larger or faster-growing segment,
as Verizon did when it expanded into high-speed Internet and wireless
services.
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The company might also try modifying the product—changing
characteristics such as quality, features, or style to attract new
users and to inspire more usage. It might improve the product's quality
and performance—its durability, reliability, speed, taste. It can
improve the product's styling and attractiveness. Thus, car
manufacturers restyle their cars to attract buyers who want a new look.
The makers of consumer food and household products introduce new
flavors, colors, ingredients, or packages to revitalize consumer buying.
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Or
the company might add new features that expand the product’s
usefulness, safety, or convenience. For example, Sony keeps adding new
styles and features to its Walkman and Discman lines, and Volvo adds
new safety features to its cars. Kimberly-Clark is adding a new twist
to revitalize the product life cycle of an old standby, toilet tissue:
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Almost without exception, every American family knows what the paper roll next to the toilet is for, knows how to use it, and purchases it faithfully. Selling an omnipresent household item requires a vital brand that stands out at the supermarket, but how do you make toilet tissue new and exciting? Kimberly-Clark, the maker of Cottonelle and Kleenex, has the answer with an unprecedented innovation: a premoistened toilet paper called Cottonelle Rollwipes, "the breakthrough product that is changing the toilet paper category." Like baby wipes on a roll, the product is designed to complement traditional toilet tissue. "In this category, your growth has to come from significant product innovations," says a marketing director for Cottonelle. Another marketing executive agrees: "Without new products, old brands become older brands. In categories where there's basic satisfaction with the products, you still have to provide new benefits . . . to build brand share."25 Comments by Dr. Laukamm
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Finally, the company can try modifying the marketing mix—improving
sales by changing one or more marketing mix elements. It can cut prices
to attract new users and competitors' customers. It can launch a better
advertising campaign or use aggressive sales promotions—trade deals,
cents-off, premiums, and contests. The company can also move into
larger market channels, using mass merchandisers, if these channels are
growing. Finally, the company can offer new or improved services to
buyers.
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Decline StageComments by Dr. Laukamm
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The
sales of most product forms and brands eventually dip. The decline may
be slow, as in the case of oatmeal cereal, or rapid, as in the case of
phonograph records. Sales may plunge to zero, or they may drop to a low
level where they continue for many years. This is the decline stage.
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Sales
decline for many reasons, including technological advances, shifts in
consumer tastes, and increased competition. As sales and profits
decline, some firms withdraw from the market. Those remaining may prune
their product offerings. They may drop smaller market segments and
marginal trade channels, or they may cut the promotion budget and
reduce their prices further.
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Carrying
a weak product can be very costly to a firm, and not just in profit
terms. There are many hidden costs. A weak product may take up too much
of management's time. It often requires frequent price and inventory
adjustments. It requires advertising and sales force attention that
might be better used to make "healthy" products more profitable. A
product's failing reputation can cause customer concerns about the
company and its other products. The biggest cost may well lie in the
future. Keeping weak products delays the search for replacements,
creates a lopsided product mix, hurts current profits, and weakens the
company's foothold on the future.
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For
these reasons, companies need to pay more attention to their aging
products. The firm's first task is to identify those products in the
decline stage by regularly reviewing sales, market shares, costs, and
profit trends. Then, management must decide whether to maintain,
harvest, or drop each of these declining products.
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Management may decide to maintain
its brand without change in the hope that competitors will leave the
industry. For example, Procter & Gamble made good profits by
remaining in the declining liquid soap business as others withdrew. Or
management may decide to reposition or reformulate the brand in hopes
of moving it back into the growth stage of the product life cycle.
Frito-Lay did this with the classic Cracker Jack brand:
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When Cracker Jack passed the 100-year-old mark, it seemed that the timeless brand was running out of time. By the time Frito-Lay acquired the classic snack-food brand from Borden Foods in 1997, sales and profits had been declining for five straight years. Frito-Lay set out to reconnect the box of candy-coated popcorn, peanuts, and a prize with a new generation of kids. "We made the popcorn bigger and fluffier with more peanuts and bigger prizes, and we put it in bags, as well as boxes," says Chris Neugent, VP-marketing for wholesome snacks for Frito-Lay. New promotional programs shared a connection with baseball and fun for kids, featuring baseball star Mark McGwire, Rawlings Sporting Goods trading cards, F.A.O. Schwarz, and Pokemon and Scooby Doo characters. The revitalized marketing pulled Cracker Jack out of decline. Sales more than doubled during the two years following the acquisition and the brand has posted double-digit increases each year since.26 Comments by Dr. Laukamm
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Management may decide to harvest
the product, which means reducing various costs (plant and equipment,
maintenance, R&D, advertising, sales force) and hoping that sales
hold up. If successful, harvesting will increase the company's profits
in the short run. Or management may decide to drop the
product from the line. It can sell it to another firm or simply
liquidate it at salvage value. If the company plans to find a buyer, it
will not want to run down the product through harvesting.
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Table
10.2 summarizes the key characteristics of each stage of the product
life cycle. The table also lists the marketing objectives and
strategies for each stage.27
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