Product Life Cycle Approach

Abstract

Product Life Cycle concept was used for the first time in economic theory by J. Dean in 1950, and this much facilitated the knowledge and evaluation of products on competitive markets. Viewed by marketing lens, any product should be considered in a strong link with a human need to be satisfied, i.e. with a certain demand determined by that represent that need in the market. That is why for a better understanding and knowledge of the PLC we should start with the demand cycle. Any demand has an evolution, in function of the need it represents. Any demand has a birth, a growing period, attaining a maximum after which the decline appears (cleaning the place for another demand to appear). At the same time, for any product life cycle there may exist brand life cycles for different products. [PUBLICATION ABSTRACT]

Headnote

Abstract:

Product Life Cycle concept was used for the first time in economic theory by J. Dean in 1950, and this much facilitated the knowledge and evaluation of products on competitive markets.

Viewed by marketing lens, any product should be considered in a strong link with a human need to be satisfied, i.e. with a certain demand determined by that represent that need in the market. That is why for a better understanding and knowledge of the PLC we should start with the demand cycle.

Any demand has an evolution, in function of the need it represents. Any demand has a birth, a growing period, attaining a maximum after which the decline appears (cleaning the place for another demand to appear). At the same time, for any product life cycle there may exist brand life cycles for different products.

Keywords: marteting, life cycle, product, launch, growing, maturity, decline

Introduction

The product life cycle notion [1, p. 28-36] may be defined keeping in mind the following hypothesis:

a) The product has limited life duration.

b) The product selling evolution knows different stages.

c) At every stage the level of profits is different.

d) Marketing strategies differ from a stage to another

By Product Life Cycle, I understand the period of time passed from the birth of a product meant to satisfy a certain need (even an idea may be considered a product) and the moment when it comes out from the market. In this interval, two sub-cycles may be defined.

a) Innovational cycle which includes ground an applicative research. During this time there are prepared the premises for product birth and they will influence the next stages;

b) Economic development which express the relationship between time and selling (in commercial cycle) or between time and profit from selling the product (in profitability cycle).

In order to be as clear as possible, I underline from the beginning that:

1) Product Life Cycle is not the same with the time when the product is under its owner disposal, just because this interval may last after its commercial death;

2) Product Life Cycle is not the same with the product group life cycle to whom the product is part of (some products from a group of products simply disappear while the other products from that group are in ascension). That is why it is necessary to separately monitor the Product Life Cycle and product group life cycle. Instead of groups we may speak about categories, classes, families or brands.

3) If we compare the stages of commercial life cycle and the profitability life cycle, we may observe, as a rule, that the two curves are not parallel, i.e. the two stages are non sinchronical. [2, ? 405-414]

The product marketing is impossible to be realized without its life cycle. The Product Life Cycle is a very useful tool to:

a) Forecast, especially in phenomenological extrapolation;

b) Control and compare the firm performance due to a certain product in comparison with other products.

c) The shape of the cycle is in function of selling or of profit.

Every stage is characterized by the four ? of the marketing mix.

1.1 Launch

In order to improve the chances of success, launching of product on the market is to be done at the right time and space, after a specific preparation of the market. Launching require that the product ( a new one) is relatively unknown to the potential clients and this explains the low volume of selling (immediately after the production process was started up). In this case, the profit curve may be under the abscissa axis (this means a negative profit) due to high production costs and low selling volume. This slow rhythm of selling growth could be explained by technical complex problems, by a specific resistance of consumers to changing selling behaviour, by a lack of distributors to accept to retail the new product. The promotion effort is at its peak (as a rule) when the product is launched just because the potential consumers need to be well informed about the new product, to stimulate them to buy it (at least to try it) and after that to distribute it through retailers.

Being a new product, the competition is quite low. As about prices this tends to be very high, because:

* Costs/ unit are high due to conventional expenses which are high per unit (because the volume of production is low);

* Some technical, organizational, and labour training are not solved yet;

* The margin over the cost level needs to be high in order to cover promotion expenses necessary for increasing the selling volume, etc.;

Connected to price and promotion four marketing mix strategies may be adopted, as Table 1 shows.

a) Quick skimming strategy is based on high prices and on an intensive promotion effort. It is recommended when product is less known on the market, but immediately after it is better known (due to its high performances) it is rapidly asked for, no matter the high price, and when the potential competition is very strong, so that the production firm should attract consumers for its product.

b) Progressive skimming strategy differentiates from the above because the high prices are not sustained by a corresponding promotional effort (only a small one). This strategy could be applied when products are relatively well known in the market, when the market dimensions are quite small, when the real need to be satisfied by the new product is high enough to determine consumers to pay high prices and when the potential competition level is relatively low.

c) Quick penetration strategy is based on low prices and on a big promotion effort. It is recommended for large markets and unknown products, when demand-price elasticity is high, potential competitors are very strong and when repressiveness of unitary costs compared with the volume of production is quite visible.

d) Progressive (slow) penetration strategy is characterized by reduced prices and promotion efforts. It is used when the product is relatively well known, the market is very large, demand-price elasticity is high and the potential competitors are real ones, etc.

The problem of choosing one or another strategy is not simply at all just because it may well influence the results of launching the product on the market.

As about the fourth ? of marketing mix (distribution), in the first stage (launching) it is applied on a small scale network.

1.2 Growth

The growth stage refers to penetrating the market followed by a very high growth (at the beginning) and a slower one (after that) of profit and turnover.

The product is better and better known, the first buyers continue to ask for it and recommend it to other people. As a result of the diffusion, the new buyers are more and more (due to firm's effort). Higher exigencies of clients determines producer to continuously improve the product. This self competition is to be preferred to competition made by others.

The promotion strategies and the price ones should be linked with those applied in that launching stage. When the launching is based on rapid penetration or skimming, in the growth stage this strategy remains important, but as the selling volume increase the rate promotion costs/ selling volume is lower and lower. If launching is made at higher prices, in this second stage the price may be, at the beginning, a high one, and after that it will decrease slowly. This determines demand to grow (new buyers appear). The profit margin is at maximum, the costs are lower at a higher rate than prices (due to conventional-constant expenses).

Distribution is expanding by opening new selling points. In order to support the growing process the firm may take some decisions concerning:

a) creating new channels or circuits for distribution;

b) penetrating new market segments;

c) progressive price diminishing.

d) new publicity formula meant to maintain the consumer interest to the product, etc.

Just because between the promotion expenses and the profit margin may suddenly appear a inversely proportion, in the growth stage the firm should choose between enlarging the market and profit growing. Due to the high level of expenses for improving, promoting and distributing the product, the firm should give up part of the present profit (in favour of the future one).

1.3 Maturity

Most products on the market are at this stage - they are "mature" products. As a rule, this stage lasts more than the previous ones, raising very complex and delicate questions to marketers. Maturity is characterized by a quite visible slow down of the growing rhythm of selling and profit (even a zero growth may appear). In this stage, the turnover and profit reach their maximum. The product is very well known by consumers (and by competitors, as well), it becomes a very common thing and, in most cases is quite easy to compete with it. That is why the product should be further improved and diversified. Advertising becomes a maintenance one, just to keep alive the consumers' interest for product. The price is diminishing or remains at a certain level (in most cases at a level chosen by competitors as well).

Maturity stage has three different distinct periods:

1) Growing maturity, when selling volume is slowly growing at lower and lower levels, just because the last potential buyers were already attracted to product;

2) Stable maturity, when selling volume remains roughly the same;

3) Decline maturity, when selling volume is declining as a result of needs saturation or to new competitors on the market.

Attracting capital in the branch that is making that product generates a production overcapacity and Ihis sharpens competition. The manufacturers are compelled to intensify promotion measures, but this increases expenses and costs. As a result, weak competitors would be eliminated from the market. The remaining firms, the attack strategy proves to be the best defending solution. In this stage the chief marketer of the firm should choose one of the following kinds of marketing mix [3, p. 414-417]

a) Market modification starts from a reality described by the following formulae:

V = N^sub u^r0,

where: V = Selling volume; Nu = number of users/ consumers; ru = utilization (consume) rate (it describes the number of units from a certain product bought by a consumer.

Growing the number of consumers may be achieved in three ways:

1) Transforming the non consumers or the potential consumers in effective consumers (using advertising, enlarging the range of complementary or auxiliary services, or in other ways);

2) Penetrating new market segments (geographically, demographically, socio-economic etc.);

3) Customers taking from competitive firms (this tool was used for a long period by Pepsi-Cola, addressing to Coca-Cola consumers to change their option towards Pepsi).

The market expanding using the second variable (consumption rate or utilization rate) may be done on three ways:

1) increasing frequency in the product utilization, making special efforts to multiply the consumption opportunities (for example, drinking champagne not only in special occasions, but to receptions, dinners);

2) increasing the volume of products consumed in every occasion (more ice cream in a cone);

3) increasing the number of utilizations for one and the same product (prescriptions for a certain drug, for example);

4) solutions in order to attract more users and to intensify its using by old clients.

b) The product modification is a strategy of finding and utilization of improving may be done by:

* Quality improving i.e. improving the product performances. This measure is recommended when:

- The quality of product or service is really improvable;

- The quality has credibility for consumers;

- There are sufficient customers who ask for higher quality of product;

* Adding new characteristics to improve reliability, flexibility, duration of use or other improvements of the product. This strategy has the following advantages:

- Induces among clients the feeling of progress and care for their needs;

- It may justify some price increasing without negative reactions from consumers;

- Offers a good image of product in consumers', prescribers' and distributors' eyes;

- Offers o greater flexibility during the utilization of the product etc.;

* Style revision, i.e. finding new solutions to increase the esthetical attraction of the product (by form, colour, etc.) different from the functional one.

c) Marketing mix modification implies a ground revision of firm's attitude towards prices, distribution, advertising, promotion methods, selling force, post selling services etc.

All these strategies should be created and applied by the firm before its competitors, and as soon as the competitors imitate it, the strategy should be changed.

1.4. Decline

No m Product Life Cycle and it is defined by the continuous decrease of selling and profit, until zero. The causes of decline may be:

* Technical progress that generates the possibility to create new products to better and cheaper satisfy the same need;

* Change of tastes and exigencies of consumers that may redirect them to other brands;

* Imports of similar and cheaper products;

* Diminishing or even disappearance of a consumption need etc.

When decline appears some firma are compelled to leave out the market, and those ones which remain in the market are obliged to collapse the range of fabrication, to reduce the marginal segments of the market, to give up some distribution channels, to reduce the promotion efforts, to decrease price etc.

This stage determines the firm to choose among:

* Keeping in the market the declining product by decreasing the promotional expenses in such a way to be able to obtain a reasonable profit, this line generating some negative effects such as: frequently adjusting prices and stocks; limiting the fabrication lots; making advertising for other destinations; discrediting itself to its clients.

* A radical modification of the product and the product revival, making big production and promotion expenses, similar and comparable with those needed for launching a new product;

* A progressive abandonment of some market segments (non profitable ones, long distance ones, disturbing ones etc.);

* Stopping the production as one of the most painful decision of the firm.

The commercial death of products is a quite normal thing, so it must be treated normally. To discover that an old product is not profitable, nonperforming compared with those of the competitors, a hardly marketable one etc., is an essential thing to the producing firm, but the decision to abandon the old product is very complicated due to the large range of criteria of deciding the abandon moment and their consequences are quite heterogeneous (production management, stock management, distribution etc.).

The factors we need to have in mind when the decision of maintaining or abandoning a product in the market is quite different. I'll mention some: the dynamic history of demand and selling, prices evolution, the profit curve or the efficiency of the product; the future potential market; stocks; the residual value of equipments; availability of capital; the abandon effects on unemployment etc.

Finally, we'll compare the positive and negative effects resulting from deciding of maintaining, retreating or abandoning the product.

2. Specific types of cycles

The classical form of the Product Life Cycle (see fig. 1) is not tested for all products. Literature describes at least ten different types. [4, p. 219-242 and 5, p. 75-87]

The cycle of "ageless" products (Fig. 2) has a very long maturity and is made from a range of normal cycles. It is specific to basic food goods impossible not to buy and consumed daily in relatively constant quantities (water, bread, salt etc.).

Monophasic cycles have only one of the four stages of the classical cycle: a) only growth stage (Fig 3a), and it characterizes only some special products (narcotics) that creates addiction; b) only decline stage (Fig 3b) is specific to products consumed in smaller and smaller doses (e.g. a drug to cure a illness is less and less consumed since that illness is cured); c) only maturity stage (Fig 3c) - similar with "ageless" products cycle.

The thri stage cycle with stable maturity (Fig 4) is a classical cycle but without decline stage and it is specific to (monopolistic) products which due to their performances during time and lack of competition remain in the "reflex" consumption of people.

The growing maturity cycle (Fig 5) is different from the previous one because it has launching and growth, but we may find it in similar cases.

The innovative maturity cycle (Fig. 6) is a kind of the upper one with refreshing stages (at maturity stage) generated by some promotional measures and it is specific to performance products, with increasing quality due to repeated innovations.

The growth-decline-stabilization (Fig 7) is met when products - after entering the decline stage - are supported to remain in the market using technical measures when the selling is relatively constant in order to avoid the stopping of their production.

The compressed life cycle (Fig. 8) is specific to fashion products, and has relatively small time duration of its constitutive phases.

The reinvigorated cycle (Fig. 9) is a rarely met one and is specific to those products that reached an advanced stage of decline (i.e. they are no more sold on the market). They are relaunched by intensively advertising campaigns, by improvements, by coming back to the past years fashion etc.

We may add some other specific life cycles.

3. The evaluation of product situation in the life cycle

The duration and configuration (structure) of the product life cycle could be influenced by some actors [6, p. 231-236] like:

* Technical scientific and technical progress, whose accelerated rhythm determines a reduction of product life duration as a result of obsolescence;

* Type of needs, life duration could be longer to the products designed to cover the basic human needs and a shorter one to the other ones;

* Degree of novelty of the product which is directly proportional to its life duration;

* The size of assortment the product is a part of. Its life duration is shorter when the assortment is smaller;

* Legislation may accelerate the recall of some products, etc.

To estimate the place where a product is situated on a life cycle curve the following indicators may be used:

* The volume and rhythm of selling which indicates if the product is in its growth stage (when the volume is small and its dynamics is high, maturity stage (when the volume is high and dynamics is close to zero), or decline stage (when the volume is continuously decreasing);

* The distribution level among buyers which is determined as a ratio of the number of effective buyers and the total number of potential buyers;

* Geographical penetration degree estimated as a ratio between the number (and surface) of the selling markets and total number of (geographic) markets, etc.

In order to measure the future evolution of the product (starting from statistical series that define the evolution from the launching moment on the market (t) the following formulae is used:

f(t) = m-t^sup n^ -e-^sup ut^

where: t = time; m = multiplier which express the cumulated influence of all factors which determines the volume of selling of the product (but not the commercial life duration); ? = the novelty degree of the product; u = the obsolescence degree of the product.

It is easily to observe that this is a roughly theoretical model; it is almost impossible to use it due to the two parameters ? and u (whose values could be only vague estimated).

4. The combined analysis of the life cycle of every product and the market life cycle

The market (similar with individual's products) has a life cycle of the same four stages: birth, growth, maturity and decline.

1) Birth is at the end of latent existence of a market (i.e. a marked made of people which need a product which is not created yet). For example, the people need to make rapid calculus but if this was for a long time an unsatisfied one represented the latent stage for electronics market.

2) Growth is the stage where a market is developed together with competitors coming and growing.

3) Maturity is the stage where all segments are covered, the market is fractured in smaller and smaller segments - the only unoccupied zones are those with low or zero profit. The market evolves under the influence of the product improvement towards reconsolidation and restructuration.

4) Decline of a market is, as a rule, determined by introducing a product which revolutionizes the need covering, and the old product should be recalled.

5. The life cycle of the product range

There are product ranges (as food and clothes) with a undefined life cycle. It is about products that reach the maturity stage at different moments, coming one after another. But, there are ranges (fashion products) with a life cycle very similar with the classical form. In most cases the range life cycles, compared with a brand or a product, is characterized by: a longer duration, and a dominant maturity stage. [7, p. 273 - 288]

The relations among products, brands and ranges life cycles are described in Fig. 1 0.

Among the stages of product life cycle and range life cycle may appear according or discordant situation, with reciprocal influences to be considered.

When both product life cycle and range life cycle there are in the launching stage, it is about the opening of a new market for the firm's products because the creating of a new market is very costly and risky.

When the product launching is superposed on the growth stage, the expenses and risks are small and the new launch contributes to the development of a range of products whose market is expanding.

When the launching of a product comes in the maturity stage of the range of products we have an innovative maturity stage of the range of products. This operation contributes to the firm consolidation on the market whose range is strongly competed.

When the product launching is superposed with the decline of the range this may appear as an absurd situation. However, when we appreciate the opportunity of such an action we need tot ignore the following three things:

1 ) The decline of a range cannot be stopped or delayed by launching new products;

2) A declining market proves to be quite profitable and it depends on the size and speed of declining;

3) Any endangered range of products may recover with the help of some identical, similar or new products.

In order to have a complete image of the age of a range of products is necessary to determine the medium age of products ant to analyze its life cycle viewed through its turnover prism.

The average age of products is an important characteristic of a game especially when there are indicators about the average age of the competitors' products (Hond is an example with a life duration of about four years).

Analyzing the range of products through the turnover prism reached the conclusion that in most cases (with some exceptions) we may observe that the 80/20 rule is confirmed: i.e. 80% of the firm turnover is made of 20% of its range of products. This is not to conclude that the other 80% does not deserve to be produced, just because among them there are products in the launching or growth stage that may be - in future - part of the other 20%.

Analyzing the range of products life cycle is based on the average age of own products (comparable with those of those of competitors), on describing the life cycle stage of every product and on determining the share every product has in the total turnover of the firm. In function of this elements, the firm be able to elaborate its strategies concerning the range and products.

References

References

[l]Dean, J., (1950), Pricing Policies for New Products, Harvard Busness Review, nov. - dec, 1950

[2]Munteanu, V. A. (2011), Marketing modern. Concepte, metode, tehnici. Proiecte pilot, teste, Editura Sedcom Libris, Iasi

[3]Dubois, P. L., Jolibert, A, (1992), Le Marketing: Fondaments et Pratique, 2e édition, Economica, Paris

[4]Rink, D. R, Swan, J. E., (1967), Product Life Cycle Research: A Literature Review, Journal of Business, 78/1967

[5]Vandaele, M., (1986), Le cycle de vie du produit: concepts, modèles et evoluation, Recherche et Applications en Marketing, 2/ 1986

[6]Niculescu, E. (coordonator), (2000), Marketing modern. Concepte, tehnici, stratega, Editura Polirom, Iasi

[7]Maxim, E., Gherasim, T., (2000), Marketing, Editura Economica, Bucuresti, 2000, p. 273 - 309

Supplementary recommended readings

Balaure, V. (coordonator), (2000), Marketing, Editura Uranus, Bucuresti

Kotier, Ph., (2003), Managementul marketingului, Edifia a UJ - a, Teora, Bucuresti

Kotier, Ph., Dubois, B., (1992), Marketing Management, Publi-UnionEditions, Paris

Manóle, V., Stoian, M., Ion, R ?., (201 1), Marketing, Editura ASE, Bucuresti