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PRODUCT LIFE CYCLE AND INTERNATIONAL PRODUCT LIFE
CYCLE
ECONOMIC AND MARKETING PERSPECTIVES
Dinker Raval
And
Bala Subramanian
Morgan State University, Baltimore, MD
ABSTRACT
This article makes a distinction between the Product Cycle and Product Life
Cycle and attempts to clarify what has conceptually been a fuzzy area. Vernon's
model is a production oriented, macro level empirical explanation of shifting
trade patterns while the international product life cycle is a market oriented,
micro level explanation of the life cycle of products in international markets. It
redefines the International Product Life Cycle concept.
I. INTRODUCTION
A review of literature in economics and marketing suggests that since
Raymond Vernon published his article "International Investment and
International Trade in the Product Cycle" in 1966,1 there has been a simultaneous
development of literature pertaining to the 'product cycle' in marketing. There are
differences between Vernon's concept of the product cycle and marketers'
perception of the product life cycle. However, when one reviews publications in
areas where these disciplines tend to overlap, particularly in international
marketing and international business, both of these terms tend to fuse together and
be used almost interchangeably.
While discussing Vernon's model, Louis T. Wells, Jr. states that "the
model claims that many products go through a trade cycle, during which the
United States is initially an exporter, then loses its export markets and may finally
become an importer of the product"2. Warren Keegan, a marketing scholar, on the
other hand, refers to the International Product Life Cycle in the following manner:
"The International Product Life Cycle model suggests that many products go
through a cycle during which high income, mass consumption countries are
initially exporters, then lose their export markets, and finally become importers of
the product."3 These are clear instances where trade cycle and product life cycle
have been defined almost identically in the international context.
There could be several possible explanations for the interchangeable use
of the product cycle and product life cycle concepts. One explanation is that the
product cycle, developed by economists as part of the international framework,
was initially unknown to marketers when they developed the product life cycle
concept.4 Another possibility is that marketers, in order to extend the product life
cycle concept to international markets, borrowed the product cycle concept from
economists who employed the concept to explain patterns of international trade.
The interchangeable use has created conceptual fuzziness in the literature and has
overshadowed the differences between the two.
II. PRODUCT CYCLE AND PRODUCT LIFECYCLE
The purpose of this paper is to make a distinction between the product
cycle and product life cycle concepts, clarify the relationship between the two and
redefine the international product life cycle. Raymond Vernon, attempting to
explain patterns of international trade, observed a circular phenomenon in the
composition of trade between countries in the world market. Advanced countries,
which have the ability and competence to innovate as well as high-income levels
and mass consumption become initial exporters of goods. However, they lose
their exports initially to developing countries and subsequently to less developed
countries and eventually become importers of these goods. Vernon's hypothesis
was an attempt to advance the trade theory beyond the static framework of the
comparative advantage of David Ricardo and other classical economists. It
explored hitherto ignored or unexplained areas of international trade theory such
as timing of innovation, effects of scale economies and the role of uncertainty and
ignorance in trade patterns. His intent was not to propose a theory of product life
cycle as commonly understood by marketing theorists.
The product life cycle concept, typically expressed as an "S" shaped curve
in marketing literature, is based on the analogy of the human biological cycle.5
Products, like living organisms, go through stages of birth, development, growth,
maturity, decline and demise. To be meaningful, the product life cycle concept
has to be used in conjunction with its counterpart, market evolution that is
comprised of various stages of market development. Philip Kotler links both
product life cycle and market stages in his concept of market evolution.6
The product cycle concept identifies four stages that the trade patterns go
through. Louis Wells identifies these four phases as follows:
I. U.S. Export Strength
II. Foreign production starts
III. Foreign production competitive in export markets and
IV Import competition begins 7
The product cycle is a macro level attempt to generalize patterns of trade between
nations based on empirical data. It offers innovation and economies of scale as
predominant explanatory variables. Vernon hypothesized a circular pattern of
trade composition that occurs between trading partners in different stages of
economic growth.
Unlike the product cycle with its macro orientation, the product life cycle
concept in marketing theory is a micro level explanation of stages of the life cycle
a product or service goes through in the context of its market life. Sales volume
and profits become the critical micro variables in the product life cycle
framework. In the introductory stage of a product's life, sales are typically slow
and profits negative. In the growth stage, both sales and profits rise at a rapid rate.
During maturity, sales volume may continue to rise at a declining rate and profit
may stay high. In the decline state, both sales and profit decrease.1\ Sales and
profits are the principal variables for marketing decisions. The product life cycle
is essentially a tool for firms to design marketing mix strategies for different,
states of the life span of a product or service.
Vernon stresses the degree of standardization as evidence of maturation of
the product. A mature product typically may become standardized across
international markets. The yardstick for maturity in the product life cycle
approach is the rate of sales growth. Changes in this rate mark the transition from
one stage of the product life cycle to the next.
An interesting example of these differing perceptions of maturity can be
found in the market for personal computers. In the past decade, many facets of the
computer hardware and software products became standardized either through
strength of market leaders such as IBM and Microsoft or by the joint efforts of
industry, users and/or government to establish standards. Currently this market
has standards but is by no means mature. It is still rapidly expanding domestically
as well as globally. Using Vernon's yardstick of maturity, the computer industry is
in a mature stage of the product cycle whereas it is still in the growth stage
according to the product life cycle approach.
Vernon's product cycle model is fundamentally production oriented and
does not focus on consumer oriented sociocultural and behavioral variables.
Vernon's framework is based on industrial goods in manufacturing sectors and
virtually ignores trade in intangibles such as services or brand names. While it
provides a broad, long-term macro frame of reference, it is not particularly
valuable in making micro level and short-term managerial decisions in firms. His
approach is more likely to provide insights for national policy formulation at
macro levels.
The traditional definition of demand in economics has two important
components: willingness to buy and the ability to pay. Vernon's hypothesis deals
with the ability to pay as indicated by one's level of income. The product cycle
hypothesis does not refer to the willingness to buy which is a function of culture.
Culture influences greatly the willingness to buy through changes in values,
norms, attitudes, business customs and practices. The product life cycle model
factors in these variables in marketing mix decisions, which are aimed at
stimulating the consumer's willingness to buy. Marketers believe in the role,
freedom and ability of marketing mix to alter consumer behavior patterns and
expectations of consumers demand shifts.
Interest in a product and its acceptance or rejection will depend upon its
cultural relevance. For instance, non-kosher meat products may not have market
prospects in Israel. If products are not culturally acceptable, the international
product cycle concept has little relevance.
Another striking difference between Vernon's perception of the
international product cycle and marketers' view of the product life cycle is that the
former focuses mainly on inventions and new products. It overlooks the tried and
well-established products in the domestic market, which do not enter international
markets to take advantage of the economies of scale. Firms that manufacture these
products have had ample opportunities for growth in the domestic market and
they do not think of the international market until the market for their products
reach maturity. McDonald's, Pizza Hut and Kentucky Fried Chicken did not go
international until the domestic markets were nearly saturated. The product life
cycle concept is generally a tool for making decisions relating to domestic
markets.
III. INTERNATIONAL PRODUCT LIFE CYCLE
The usage of the phrase "international product life cycle" in the literature
has been anything but standard and the term can be precisely defined to remove it
from the shadow of the product cycle or the trade cycle concepts in the
international context. The international product life cycle can be defined as
market life span stages the product goes through in international markets
sequentially, simultaneously or asynchronously. The sequential stages are
introduction, growth, maturity, decline and extinction in the international markets.
When a product is positioned in different international markets at the same time
and is going through similar life cycle stages, the cycle process is simultaneous.
The life cycle stages are asynchronous when the product is in different stages in
different international markets at the same time. The life cycle stage in which a
product can be positioned is influenced by macro variables indigenous to country
markets. Stanton and others cite examples of this phenomenon. Steel-belted auto
radial tires had reached the saturation level in Western Europe when they were
being discovered by the U.S. market. Thus it was in the maturity stage in Western
Europe and introductory stage in the United States.9
There are two major differences between the product life cycle and the
international product life cycle. The first relates to rejuvenation or rebirth in
international markets of a product that is in decline domestically for market
related reasons or is close to extinction. Consumption of cigarettes in the United
States market has been rapidly declining due to health consciousness of
consumers and changes in public policy towards smoking. But the markets for
American cigarettes are expanding in China, Eastern Europe and Russia. The
handloom produced 'Bleeding Madras' fabrics were almost extinct in the Indian
domestic market when it gained a new lease on life after being introduced as a
fashion product for summer wear in the United States. Finding new international
markets can rejuvenate products that have reached the declining stage in the
domestic market.
The second difference is that if a culture specific product is designed for
the international market, it can attain a new dimension of the product life cycle
that is not possible the domestic market. For example, fast food outlets like
Burger King and McDonalds can design a product for cultures permeated by
Buddhist or Hindu vegetarian values. This product can succeed and go through
product life stages in international markets and still not be acceptable in domestic
markets. The international product life cycle is clearly different from the product
cycle concept that is essentially circular and the product life cycle with its
numerous variations.
IV. CONCLUSION
This analysis demonstrates that the product cycle approach developed by
Vernon and the product life cycle concept foul in marketing theory are connected,
but still differ from ea, other. The product cycle in essence is a trade cycle
explanation of some international trade patterns. It adopts a macro perspective and
is mainly production oriented. It suggests largely exogenous economic variables
as determinants of foreign trade and investment patterns.
In contrast, the product life cycle concept is based on the analogy of
human biological growth stages. It is a micro le\ explanation of life stages a
product goes through in relationship to its market. It highlights consumer behavior
orient endogenous variables that allow the interplay of marketing mix strategies
designed to create a shift in the demand cur\ The international product life cycle
concept, by incorporating cultural relevance as well as the rejuvenation factors,
broadens the applicability of the concept to global markets.
The convergence of concepts in economics and marketing literature has
produced a conceptual blur that has led to t interchangeable usage of the two
concepts. In spite of alluring similarities, there are significant differences between
the two. The product cycle is a part of explanatory macro framework of the
international product lifecycle in global markets. It can identify the direction of
trade patterns and facilitate micro level product positioning for different stages of
life cycle. The conceptual blur is eliminated when the product cycle is properly
viewed as a trade cycle, which it really is.
1 Raymond Vernon. International Investment and International Trade in the
Product Cycle. Quarterly Journal of Economics, May, 1966
2 Louis T. Wells, Jr. A Product Life Cycle for International Trade? Journal of
Marketing, July 1968.
3 Warren Keegan. Global Marketing Management. (4th edition) Prentice-Hall,
Englewood Cliffs, NJ.
4 Sak Onkvisit and John J. Shaw. An Examination of International Product Life
Cycle and Its Application Within Marketing. Columbia Journal of World
Business, fall 1983
5 Nariman K. Dhalla and Sonia Yuspeh. Forget the Product Life Cycle Concept!
Harvard Business Review, January-February 1976.
6 Philip Kotler. Marketing Management (6th edition) Prentice-Hall Inc.,
Englewood Cliffs, NJ. Pp. 369-373.
7 Louis T. Wells, Jr. A Product Life Cycle for International Trade? Journal of
Marketing, July 1968.
8 Philip Kotler. Marketing Management (6th edition) Prentice-Hall Inc.,
Englewood Cliffs, NJ. Pp. 366-367.
9William J. Stanton, Michael J. Etzel and Bruce J. Walker. Fundamentals of
Marketing (9th edition) McGraw-Hill, New York, NY. P.200.