Product Life Cycles - Assignment Example

Academia- Research 28ty November 09 Topic: Compare and contrast the characteristics of a growing and mature product market. Discuss Introduction Every Product experiences life cycles. Within an industry, various individual companies remain at different life cycle stages. The life cycle is an important and universally accepted concept to help business understand business strategies sales growth and other changes over time. The distinct stages of an industry/product life cycle are: introduction, growth, maturity, and decline. Sales generally starts slowly at the introduction phase, take off rapidly during the growth phase. At maturity the business comes at sizeable level and then sales begin a gradual decline. Profits generally continue to increase throughout the life cycle caused by industry expertise, economies of scale providing scope to reduce unit costs over time. At the introduction stage the costs are generally high because of lower production and exploratory market and creation of new product demands. Profitability is also low or nil. At growth stage the characteristics are different. After all the market exercises having been done product is recognised by the consumers and demanded at a rapid speed resulting in reduction in cost. Economies of scale are achieved by this time. Sales volume increases quiet high at this stage. When cost is reduced due to economies of scale and sales revenues increases the profitability increases too. Demand factors remaining higher the business tends to increase product prices higher. Once the product is well accepted and becomes a favourite consumer pays the price asked for by the seller. The product acquires a quality image in the minds of consumers and they feel to enjoy a consumer's surplus even at higher price. Simple promotional efforts and advertising help consumers to retain the product in mind that promote the product selling easily. The competition gradually becomes aware of the product and its revenue yielding capacity. They start venturing into the business to get a market share and earn profits. The increase in competition exerts pressure in the market thereby reducing the market prices. The product gradually enters into maturity phase. Maturity phase: the business gets a lot of experience in the growth phase. Production volume increases very high. Many competitions enter in to the market arena and put thrust on the product prices and market outlets. The market gradually gets saturated. Extra efforts are employed to retain the sales volume. Prices to lower because of so many products fighting for the same market size. Market share drops that creates pressure on the entire business. Extra marketing efforts, brand differentiation and product diversification with new features have to be introduced costing more to the company. Profit volume tends to lower. Company and its business being old invite demands for higher wages and bonus from workers that put pressure on the profitability of the business. Curtailment in production leading to closure of some departments deprives the company of the benefits of economies of scale. Overall profitability is down and makes the business unsustainable. In course of the growth phase adolescent phase comes which is characterised with high growth and sales volume accompanied by increase in performance and product variance. The product is placed in the star corners of the BCG matrix with high growing sales revenue with offensive product prices. The product is powerful to be offensive and adopts aggressive pricing with a view to create a premium positing in the market to make customers view it as a superior product that can not be matched by the competition. Market growth is accompanied by market fragmentation. This in turn causes competition. But competition in market growth is not less intense compared to the intensity in market maturity. In the growth phase, almost every organization remains in profits because of the growing and greater demand, whereas in maturity, organizations have to struggle for their survival. The price of the product in the growth-oriented market is not the decisive factor in competition. Marketing and product improvement by new technological process are the most significant factors. It can enable the products to be sold at relatively high prices because of the added features and consequent greater demand The business adopts different mix in different phases. In growth phase the market being in favour of the product helps the marketer to churn the market aggressively by adopting higher pricing strategy. The alternative pricing strategy of quicker penetration by reducing the price of the product can also be adopted by some others to gain later with more sales volume. In the mature phase on the opposite the product is characterized by stabilized sales and growth rates that make the company adopt defensive strategy to move to defend itself from the competition. There are many products that after reaching the maturity stage revive back with strength and again adopt growth strategy. It is only possible when the business changes the product with new features with technological changes that put the product in an enviable position vis a vis the competition. In growth phase significant amount as additional capital is required to make the product find a due place and recognition. Since many competitors enter the market in growth stage the business has to differentiate its offerings with other brands trying to make a space in the market. Thus growth phase require enormous fund to keep the product focused through close marketing campaigns. Product standardization is essential at this stage and it is always possible with economies of scale. Research and development can help in product standardization that is not possible without adequate funds. Proper image building, maintenance of growing revenue and profitability is essential for the shareholders to earn return. If the firm is successful in the market, there will be growing demand that will create sales growth. Earnings and accompanying assets will also grow and profits will be positive for the firms. The star products will have high growth and market share. In this stage many market rivalry will spring up and the business will have to contain the intense competition. The growth stage may become longer caused by frequent product upgrades and enhancements. This delays the product into maturity. The computer industry is the best example with a long growth stage brought about by frequent upgrades in hardware, services, and add-on products and features. Many products fail at introduction stage and do not reach the growth stage at all. On the opposite some companies which succeed goes far and wide to different geographical areas incorporating the local feature and making headways for pretty long time. Life cycle curve becomes steeper and steeper until the maturity phase arrives. In maturity stage the product life cycle becomes flatter and flatter till product enters the decline phase. This phase is characterized with slower grow. Sales remain at stage that can not be discarded. Sales expand and earnings grow from these "cash cow" products but the rate slows down from the growth stage. The rate of sales expansion is equal to the growth rate of the economy. The marketing effort must remain strong to project the unique features of the product and continue to differentiate the product offerings from industry competitors. Firms can compete on quality to separate their product from other lower-cost offerings. The best example is 'Permacel' products of Johnson & Johnson Ltd that kept its adhesive PVC tape in the market for high end customers at premium price in spite of the fact that there were many other brands in the market which were better than this product but with poor image. The product remained a cash cow for a pretty long time. At maturity phase there is another option for the firm to adopt and survive is to try low cost .low price strategy to increase volume of sales to make steady profits. In the maturity stage there are fewer firms that can still face competition but those which survive with strength are unique and dominant. An efficient management will always try to prolong the maturity phase to gain from the expertise and popular product that exists today on account of the performance. New investments at this may not be favoured but some production improvement can be possible to automation, bringing suppliers and customers in a tight supply chain. Sometimes the product can be recommended for new uses that can create new market for an old product. Arm & Hammer baking soda has such history of extending its new use as deodorant in refrigerator and an additive in toothpaste extended its life cycle to yield profit for longer. . References: Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. Strategic Management: Competitiveness and Globalization. 4th ed. Cincinnati, Ohio: South-Western College Publishing, 2001. Porter, M. Competitive Strategy . New York: Free Press, 1980. Porter, M.E. "Towards a Dynamic Theory of Strategy." Strategic Management Journal. 1991. Wansink, Brian, and Jennifer Marie Gilmore. "New Uses that Revitalize Old Brands." Journal of Advertising Research. March 1999. Industry Life Cycle - Stages of the life cycle, Prolonging the ... Reference for Business Encyclopedia of Business, 2nd ed Industry Life Cycle - advantage, cost, Stages of the life cycle, Prolonging the life cycle, Life cycles are everywhere http://www.referenceforbusiness.com/small/Inc-Mail/Industry-Life-Cycle.html#ixzz0Y94tSbjL Product Management, 4/E - Google Books Result by Lehmann, Russell S. Winer - 2005 - Business & Economics In contrast, a mainframe computer from 1960, a microcomputer from 1984, ... Reorders in a mature market are of two types. For a consumable product, ... books.google.co.in/booksisbn=0070603480... - What Drives Product Life Cycle By shivkumar.wayal on March 20, 2009 What Drives Product Life Cycle (PIM-PLM and Standard Business ... 20 Mar 2009 ... blogs.oracle.com/.../2009/03/what_drives_product_life_cycle.html Read More