Download The Product Life cycle — Fact or Myth?

The product life cycle —
fact or myth?
Alan Marklew, ABE Examiner in Marketing, takes a deeper look
into the implications of this subject, and underlines the need for
students not to be satisfied with superficial study of a subject. It
cannot be stated too often that simply re-stating text book theories
without in-depth knowledge and understanding of what is involved
results in inadequate answers to questions in all subjects of the
examinations.
It would be surprising if anyone connected with marketing
- manager, academic or student - was not familiar with
the concept of the Product Life Cycle. Thus a brief resume
only is given here as a starting point for the discussion
which follows.
Observation of the real world leads to the inevitable
conclusion that the sales position and profitability of a
product can be expected to change over a period of time.
For example, recent events in the personal business computers market has led to a situation where several companies which were profitable and successful only months
ago are now struggling with problems which are likely to
lead, in some cases, to liquidation. Electronics is proving
to be a volatile and fast-moving industry; but other
products and industries have shown similar
characteristics, although the time-scale has varied.
This pattern of market behaviour seems to have some
identifiable characteristics, which lead to the notion of
attempting to recognise distinct stages in the sales history
of a product. The representation of these stages, usually in
diagrammatic form, is known as the Product Life Cycle
(PLC). The most common form of portraying the cycle
takes the form of an S-shaped sales curve as illustrated in
Figure 1.
The curve is typically divided into stages: development,
introduction, growth, maturity and decline.- Some authors
suggest variants: for example the period shown as
maturity is sometimes divided into two sections described
as maturity and saturation. But however the curve is
divided and sub-divided, the principles are the same.
Returning to Figure 1, the significant features of each
stage are as follows:
Development — when the product is being developed ready
for marketing. Accordingly sales are nil, or virtually nil.
But depending on the product type, the technology and so
on, substantial investment may be necessary. For
example, development of a new civil airliner may cost
several thousand millions of pounds. A new ethical drug
may cost tens of millions of pounds, a large part being in
clinical testing, before it can be released on to the market.
Education & Training, February 1985
© Emerald Backfiles 2007
Introduction — when the product is first introduced to the
market. Typically the early experience is of slow growth.
However, there may be substantial marketing investment
in areas such as advertising and sales promotion; hence
products are usually lossmakers for most, if not all, of this
period.
Growth - as market acceptance (hopefully) rapidly
increases. The profit curve and the sales curve show a
strong improvement. Although the marketing organisation
may still be spending heavily to consolidate its position,
this expenditure is offset by the increasing volume of sales.
Maturity - when most of the potential purchasers of a
product have been converted into customers. The rate of
growth in sales slows down progressively, and then levels
off.
Decline - eventually, perhaps towards the end of the
maturity period. Sales begin to drop off, and the rate
of decline becomes pronounced as the product loses its
market position; either because competitors are eroding its
sales, or consumer tastes are changing.
W h a t the PLC means
The significance of the PLC is that the different stages
correspond to distinct problems and opportunities with
respect to marketing management.
The Introduction stage is usually defined as the point at
which the new product is made available for general
purchase in the marketplace. At that stage sales are low,
as the job of marketing is to build up a customer franchise.
Thus there is a heavy investment in consolidating distribution and promoting the product. The problem is to inform
potential customers of a new and unknown product, and
to persuade them to try it. Quite reasonably, intermediaries are reluctant to stock something new. From
experience, they are usually fully aware of the high failure
rate of new products; and, of course, when the product has
proved itself they can still quite easily add it to their range.
This presents the first major hurdle for marketing management. Through promotional activities aimed at the consumer, the desire to try the product may be created. But if
the customer does not have access to it, then the overall
effort will be meaningless.
As only a very small number of new products are so
immediately desirable as to create great demand in consumers and intermediaries, growth can sometimes be very
slow indeed. As competition is usually limited during this
period, the opportunity is often taken to charge relatively
high prices. This is not as unreasonable as it might sound.
Production costs are usually high because volume is low
and, furthermore, technological problems are often
encountered in production. However, the approach by
management to the marketing mix needs to be moulded by
the needs of the market and the overall marketing strategy.
If the new product satisfies the market, the rate of sales
will start increasing rapidly as the product enters the
Growth stage. A number of factors will contribute to this:
the cumulative effect of marketing activities, good 'wordof-mouth' advertising by existing satisfied users, and a
corresponding lack of bad 'word-of-mouth'. The rapid
market growth will be attracting the attention of potential
competitors, the more nimble of whom will quickly launch
competing products. These will often be differentiated,
increasing the appeal of the product to a wider market as
the choice of features increases.
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In spite of the increase of supply to the market from the
growing number of competing firms, prices tend to be
reasonably stable, or subject to only gradual erosion. This
is because the increased supply is matched to a substantial
degree by the increase in demand, which is satisfied by a
broadening of distribution as more and more intermediaries introduce the product to their range. Marketing
expenditure is still high, but costs are spread over a greater
volume of sales. Unit production costs will also be falling;
partly due to the increasing volume, but also because of
the increasing body of experience being gained.
Profitability usually peaks during this period, but it is
not a time to relax. The competitive battle will be only in
its early stages, and the organisation should be vigorously
seeking to establish a sound base in the market; so that as
even more competitors enter the fray it will be in a better
position to defend its own ground, and exploit any
opportunities which may arise to strengthen its position.
The dilemma for management is that the vigorous pursuit
of future profitability will be at the expense of current
profitability; equally gathering in high current profits, at
the time when this is relatively easy, will tend to undermine
its future position.
Eventually the rate of sales growth will slow down, and
the product will move into the Maturity stage. Simple logic
suggests that sales cannot increase indefinitely. Eventually
most or all of the potential customers have become actual
purchasers, and the essential characteristic is that of a
replacement market. At this stage, as growth slows, the
common result is of production over-capacity in the
industry. In turn, this leads to an intensification of competition. In order to defend positions there is a strong
increase in promotional expenditure, price dealing and
similar activities intended to retain or possibly increase
market share. There may also be increased investment in
research and development to find better versions of the
product. With no significant sales increase, the increased
expenditure leads to some profit erosion. In addition, some
de-stabilisation of the market may occur from time to
time. This can happen as some suppliers, having failed to
gain a profitable share of the market, decide to withdraw.
Residual stocks of such companies are often liquidated, so
varying amounts of the product will be offered from time
to time at what are usually very low prices.
The Maturity stage is of particular significance.
Although it may not represent the most interesting or
important stage in a product life, nevertheless most
products are in this stage of the life cycle. Most of marketing management's time and effort is therefore taken up in
dealing with the mature product. It follows that the general
performance of a company relies on its ability to manage
such products effectively. A positive and creative
approach is called for in pursuit of strategies such as
market modification, product modification, marketing-mix
modification, or some combination of all three.
Eventually sales tend to enter a stage of sustained
decline. Suffice to say that managing the decline and withdrawal of products is often handled badly. Nevertheless, at
some point financial or other logic will indicate that the
product should be withdrawn from the market. The
Product Life Cycle is now complete.
it seems to have an elegant simplicity. It is easily understood, it can be easily explained - on paper at least - and
it seems to relate to some market phenomena. However,
its usefulness to management would appear to have substantial limitations. Before becoming too enthusiastic,
perhaps it is worthwhile examining the potential usefulness
of the idea.
The evidence for its existence is somewhat mixed. Work
carried out by the Nielsen marketing research organisation
on food products between 1974 and 1978, as reported by
Ruppe1, is claimed to show the existence of the PLC. On
the other hand, Polli and Cook2, although cited by Kotler
and others as appearing to substantiate the theory, had
considerable reservations and suggested that:
the life cycle concept, when used without careful formulation and
testing as an explicit model, is more likely to be misleading than
useful.
Dhalla and Yuspeh3 go even further; they suggest that
we should forget the Product Life Cycle concept. To them
the PLC has, to date, little empirical backing to substantiate it. In addition product class, product form and
specific-brand forms are often confused in attempts to
analyse the PLC. Finally the variety of its forms, as
suggested by Cox4 and others, seems to suggest that some
products conform better than others.
If the PLC is described as a theory, then the most useful
kind of theory is that which is predictive. In other words,
its appropriate application will enable us to predict various
features of the PLC:
-
its shape
the current position of the product in the cycle
when turning points will occur
at what sales level these turning points will occur.
As mentioned above, the shape of the PLC seems to be
subject to considerable variation which would appear to
make specific prediction difficult. Perhaps it is worth
noting that generally the reported evidence to date has
been after the event, and even this seems to raise considerable uncertainty. Identifying the current position of a
product in the cycle is, perhaps, not too difficult a problem
to overcome if the company carries out appropriate
research.
Observation of the real world would seem to indicate
that identifying when, and at what sales level, turning
points will occur represent a major problem. A number of
factors, external to the organisation and uncontrollable by
it, have an important influence on how the market and the
PLC will evolve. For example, how might economic conditions develop over the life of the product and is it
possible to predict their effects on sales? Another problem
is that of evolving competition during the PLC. Is it
possible to predict the competitors, when they will enter
the market, and what their strategies will be? The answer
to these questions, desirable if not necessary for
worthwhile prediction, will be almost impossible to obtain.
Even forecasting potential competitors is increasingly
difficult in a world where the rate of change is accelerating,
and the multi-national nature of business is changing the
scope of competition.
Conclusions
H o w useful is PLC?
Variously described as a theory, a concept and a notion,
depending on which author you read, PLC is probably one
of the more contentious issues in marketing. At first sight,
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The PLC needs to be approached with considerable
reservations, both by academics and practitioners. The
available evidence would seem to show that its usefulness
as a predictive tool, in a scientific sense, is very limited.
Dhalla and Yuspeh3 suggest that, in fact, the PLC is a
Education & Training, February 1985
dependent variable. What this means is that the PLC
curve is shaped by the marketing action of both oneself
and competitors, rather than marketing action being
shaped by the PLC. A slavish belief in the concept could
lead to interesting consequences. It has been suggested
that this approach has on occasion led managers to kill off
brands that could be profitable for many more years, the
reason being that brand performance typically tends to be
somewhat erratic. What may only be a short-term
downturn in sales is interpreted as the start of the decline
stage; so management sets in motion the steps required to
cease producing the product. It therefore continues to
decline and is finally withdrawn, thus 'proving' the validity
of the PLC.
If there are such reservations as to the specific validity
of the PLC, should the whole idea be rejected as meaningless and misleading? The answer must be in the negative. Although the PLC may be limited, qualitative
observation of the real world indicates that products come
and products go. In addition it can be seen that over a
period of time marketing activity certainly changes,
apparently in accordance with the basic stages of the
PLC.
In conclusion, then, it is possible to say that the PLC is
a basic theory which has limited uses in planning. Its predictive value is limited, but can be useful in a descriptive
and general sense. In particular, its ideas will remind
management of three important phenomena:
- Products have a limited life; although this life will vary
according to circumstances and will itself be influenced
by the actions of managers, it is necessary to plan for
change.
- Sales and profit performance of products tend to vary
over a period of time.
- Products require different marketing programmes as
they proceed through the life cycle.
In other words the PLC will help to sensitise managers
to change, and provide some insights as to the nature of
change as it occurs. However it provides little guidance as
to when change will occur, and how it is to be managed.
References
1. Ruppe - The Importance of Innovation - Marketing Trends, A. C.
Nielsen, Oxford, No. 1 1980.
2. Polli and Cook - Validity of the Product Life Cycle - Journal of
Business - October 1969, Vol.42, No. 4.
3. Dhalla and Yuspeh - Forget the Product Life Cycle Concept Harvard Business Review - January-February 1976.
4. Cox - Product Life Cycles as Marketing Models - Journal of
Business - October 1967, Vol. 40, No. 4.
Education & Training, February 1985
© Emerald Backfiles 2007
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