Product Market Cyclicality - Influence on Car Assemblers Sales, Value Addition, Profit Performance - Essay Example

? PRODUCT MARKET CYCLICALITY EXERTS A POWERFUL INFLUENCE ON A CAR ASSEMBLER'S SALES, VALUE ADDITION, CASH FLOW, AND PROFIT PERFORMANCE by Name Name of the Class Name of the Professor Name of the School City, State 6 January, 2013 Introduction All markets for products are cyclical. All products also have life cycles, from introduction to decline. The life cycles of individual products vary both in length of time and form. A product may experience years of consistent sales, or overnight fads. Managers are therefore usually required to engage in regular development of new products, to maintain a competitive edge. Marketing strategies are guided by the product life cycle stages. This is because as a product moves through its life cycle, competition, pricing, distribution, promotion, and market information strategies need periodic evaluations and alterations. The life cycle of a product begins prior to the product’s entry to the market. It involves the introduction, growth, maturity, and decline phases. 1. Introductory phase. This phase begins when a product is introduced in to the market for the first time. Initial sales for a product are usually rather small, and a high percentage of products characterise this phase. The product however receives approval from its producers followed by purchases from early adopters. “Satisfaction, reinforced by marketing communication, leads to repurchasing and, as soon as sales increase further, the product exits this phase” (Cant, Strydom, Jooste, and Du Plessis, 2006, p.242). 2. Growth phase. During this phase, sales in the target market grow mainly as a result of purchases by many early consumers, and increase in repurchasing. Greater force is impacted to the demand for the product, as competitors with similar products enter the target market. 3. Maturity phase. This phase is characterised by levelling of a product’s sales growth and demand. Additional competitors with similar products enter the target market. Innovators and early adopters are attracted by improved products satisfying the same needs. Cant, Strydom, Jooste, and Du Plessis point out that “a stage of market saturation is eventually reached-sales of the product level off and starts to decline. The laggards now start buying the product” (2006, p.242). 4. Decline phase. During this phase, a rapid decline is experienced in sales and the target market. As a result of this, marketers may exclude some products from the product line, to remove products that do not earn profits. The product life cycle is very significant since it helps in the development of new products. This is because through a developed product, management is able to gain knowledge on how to develop a new product, or improve an existing product. It also helps in profit prediction, since the amount of profits depends on the amount of turnover. Therefore’ “the management can well predict the firm’s profits in different stages of the life-cycle of the product” (Bose, 2010, p.70). With good knowledge of the product life cycle, it is possible to prepare marketing programmes. This is necessary in order to highlight the different policies, procedures, and strategies needed to be applied at the different phases of a product life cycle. Influence of the Product Market Cycle on Car Assembler’s Sales Sales and profitability of cars just like other products vary at every phase of their life cycle. By being aware about the market cycle of cars, car assemblers are able to take better advantage of their market positions on motor vehicle sales. Good knowledge of the car life cycles provides crucial indicators to car assemblers on when to launch new cars, when to move to new markets, and when to diversify their car models. This is because through the car life cycle, car assemblers are able to analyse categories of cars, their forms, brands and models. In recent times, there has been a move towards the manufacture and assembly of environmental friendly vehicles. Such vehicles have very little impact on the environment and are therefore the most preferred today. Motor vehicle manufacturers carry out life cycle assessments to determine sales for assembled cars. As a result of this, “automobile manufacturers are striving to meet new air emission standards, and are developing motor vehicles and motor vehicle equipment that meet the demands of the growing market niche for “green” automobiles” (United States Environmental Protection Agency, 1995, p.31). Life Cycle Assessment which is “an environmental approach that focuses on the environmental costs associated with each stage of the product life cycle” (United States Environmental Protection Agency, 1995, p.32) is carried out by car manufacturers and assemblers. The assessment evaluates environmental effects at every stage of the car life cycle. Life Cycle Assessment is very important in a company’s commitment to product preservation, which ultimately means great sales. An example of a company that has embraced this is General Motors, whose “environmental personnel work closely with vehicle design teams to integrate environmental principles into the earliest possible stages of the product program management process” (United States Environmental Protection Agency, 1995, p.32). Car assembler’s also focus on assembling cars using light weight materials such as plastic, aluminium, and other composites, as well as those that accommodate the use of alternative energy sources such as the electric car that includes electric components. This is because such cars are preferred over cars assembled using heavy weight materials, and cars that only use petroleum energy. Knowledge of the importance of assembling these preferred cars is crucial for ultimate big sales and sustained market shares. Influence of the Product Market Cycle on Car Assembler’s Value Addition Traditional production and assembly of cars was mainly meant for export. A good example of a country that placed emphasis on this is Japan. However, during the 1970s, Japan’s product cycle became more abreast with developed countries. According to Sklair, “today, as Japanese industry moves away from traditional production for export to a new structure stressing high-value end products and high-tech parts, an innovation-centred product development cycle is increasingly evident” (1994, p.302). Development and assembly of value added cars, which are differentiated by higher quality and utility has been made possible by advances in technology, consequently stimulating demand by consumers worldwide. Value additions help vehicle producers and assemblers in obtaining quick returns on investment, and maintaining leading market positions. In 2012, Australian car manufacturers faced a tough time (Nuguid, 2012). This was as a result of a change in consumer demand as they opted for more fuel efficient and smaller vehicles, which was the new technology of making value added cars that was being adopted worldwide. The change in consumer demand was in turn as a result of high fuel prices and environmental concerns on the use of pollutant producing vehicles. Domestic car manufacturers in Australia however ignored this move by consumers and continued producing the cars that consumers did not prefer; causing a shift by buyers to imported vehicles that met their preferences. This in turn caused a struggle on the part of Australia’s domestic vehicle manufacturers, especially in maintaining profitability, due to the falling demand for their vehicles. Mitsubishi was greatly affected by this, and after a number of years trying to improve production and efficiency, it entirely gave up and made an exit from the automobile market (Nuguid, 2012). This experience by Australian car manufactures and assemblers emphasises on the need for proper knowledge of the product market cycle, which is significant in assisting in the development of new products, prediction of profits, and preparation of marketing programmes. Today, existing Australian vehicle manufacturers have shifted their focus to the preferred fuel efficient and smaller vehicles. Influence of the Product Market Cycle on Car Assembler’s Cash Flow and Profit Performance Flow of production and capacity utilisation by major car assemblers such as General Motors, Chrysler, and Ford are hugely impacted by market volatility and maturity, which are aspects that can be understood through knowledge of the product market cycle. General Motors, Chrysler, and Ford experience unstable misfortunes in market demand and huge fluctuations year by year. According to Haslam, Neale, and Johal, “this cyclical pattern of demand impacts financially on US car assemblers such that their cash flow is unpredictably strong one year and weak the next” (2000, p.49).Consequently, a pattern of irregular cash flow has been adopted by US car manufacturers since the 1960s. The case of European nations has however been different. This is because the car market in Europe has experienced years of volume growth, as at each cycle vehicle volume sales get to a higher level. Since 1994 however, European nations have gone through flat demand for vehicles in the European Union leading to irregular cyclical downfall. In conclusion, understanding of a product’s life cycle stages is very important as it guides marketing strategies. Therefore, there is need for periodic evaluations and alterations on competition, pricing, distribution, promotion, and market information strategies as a product moves through its life cycle. Understanding of a product’s life cycle also helps in the development of new products, profit prediction, and ability to prepare marketing programmes. The car manufacturing and assembly industry is an example of an industry, whose understanding of its vehicles life cycle is crucial for its well being. This is because the vehicle market cycle has a lot of influence on the sales of car assembler's, value addition, cash flow and profit performance. Reference List Bose, D. C., 2010. Modern Marketing. New Delhi: PHI Learning Private Limited. Cant, M. C., Strydom, J. W., Jooste  C. J., and Du Plessis, P. J. ed., 2006. Marketing Management. Cape Town: Juta & Co. Ltd. Haslam, C., Neale, A. D., and Johal, S. ed., 2000. Economics in Business Context E3. London: Thomson. Nuguid, A., 2012. Green pressure: Operators must meet demand by developing fuel-efficient vehicles: IBIS World Industry Report C2811 Motor Vehicle Manufacturing in Australia [pdf] Available at: < http://www.ibisworld.com.au/gosample.aspx?cid=61&rtid=101> [Accessed 7 January 2013]. Sklair, L. ed., 1994. Capitalism and Development. London: Routledge.   United States Environmental Protection Agency, 1995. EPA Office of Compliance Sector Notebook Project: Profile of the: Motor Vehicle Assembly Industry. Washington, D. C.: Office of Compliance. Read More