The Main Stages of PLC - Essay Example

20 October 2008 Report to Dear Mr. Ray Parker Introduction Computer games manufacturing process does not differ greatly form other production processes thus, it takes into account a unique nature of computer games industry and customers' demands. Put simply, the product life cycle (PLC) plots the sales volume and profit curves for an industry (or company brand) over the history of the product. The PLC is a key tool for market planning and strategy development, including pricing strategy. Consider the range of strategic pricing options. One of the distinctions drawn was between charging prices significantly lower than competitors (penetration pricing), approximately the same as competitors (parity), or above those of competitors (premium). The question of which to use, or where on this continuum to operate, must be made at the introductory stage of the PLC. The Main Stages of PLC PLC distinguishes five market-opportunity phases: entry, establishment, expansion, maturity, and decline; and indicates the kind of opportunity analysis that should go into developing the marketing mix (see Appendix 1). This chart shows that markets increase slowly at first, and then increase at an increasing rate, reach maturity, and finally decline (Drejer 62). The time period for this cycle varies by products. Consider the difference in cycle among the dress industry, the lumber industry, and the computer industry. Also, different companies choose to enter markets during different developmental phases. Even so, management must be aware that marketing tasks of a phase 1 situation are different from those relevant to phase 4 (Crawford and Benedetto 44). Market Entry In the initial phase (market entry), there is no direct competition. Computer games manufacturing should take into account the fact that the tasks of marketing programs and strategies are those of gaining initial market acceptance and changing habits. They are concerned with creating primary demands for the product, providing customer and consumer information, identifying market segments, gaining market knowledge, soliciting channel support, and promoting to gain a foothold in the marketplace. A common market price emerges in this stage, with the range of acceptable prices narrowing (Crawford and Benedetto 44). The marketer is encountering downward pressure on prices, although this depends on the extent of product differentiation among competitors and the rate at which technological improvements are being made to the product. At this stage, a computer games manufacturer should find the most effective channel strategies and promotions activities in order to plan and develop the further campaign. For a computer game, traditional marketing channels (through specialized stores) and direct selling methods will be the most effective channels of distribution. It will be appropriate to use a skimming price in order to attract more users, and popularize the new product. The main promotion techniques are advertising and press conferences aimed to inform community about benefits and uniqueness of the new computer game (Drejer 63). Establishment The second phase is characterized by endeavors to establish markets. In this phase, limited direct competition exists, and potential competitors begin to notice the situation. The functions of marketing programs and strategies are to solidify and extend market footholds and to establish differential advantage. Marketing activities center around gaining brand acceptance and developing customer loyalty. The attempt is to establish a market niche. Also, in the growth stage individual need or benefit segments may surface (Grieves 98). A benefit segment is a sizable group of buyers that places heavy emphasis on a specific product attribute or particular mix of attributes. These segments will often differ in their willingness to pay for specific attributes (e.g., faster delivery, smaller inventories, better service, a special feature). There may, at this stage, still be a substantial amount of untapped market potential, suggesting the firm need not focus solely on competition-based pricing. The company can follow the same distribution strategies as during the first stage in order to keep a customer and obtain a strong position on this market (Crawford and Benedetto 45). The competitive turbulence stage is the most competitively intense. Aggressive pricing actions result not only because the market leaders are experiencing significant cost reductions, but because new customers are becoming increasingly scarce. Price is pushed further in the direction of costs as firms attempt to run the less efficient producers out of the market. Correspondingly, this period is also referred to as the "shakeout" stage (Grieves 98). A product in the growth stage typically is confronting new competitive entries. The benefits of large-scale production economies and the learning curve, if any, are beginning to surface, bringing down costs. At this stage, the company should use public relations and sales promotion strategies. The 'pull' selling strategies will help to increase market share and build up a demand for a product (Drejer 64). Expansion In the third phase, a company focuses on market expansion. As mass markets are developed, increasing direct competition ensues. The tasks of marketing strategies become those of extending and expanding markets and uses, increasing sales volume, and capitalizing on position. Mass marketing plans are put into force. New brands are introduced, more competitors appear, price pressures exist, but the price-cost relationship is favorable and profit opportunities are good. The life cycle of products dictates changes, and products in developmental phases must have sufficient market capability to overcome the loss of those in stages of decline. Multi-product firms must have a mix that is growing in total potential and profits. Although product change is rapid and inevitable, products must solve problems for sellers long enough to justify the risks of research, development, and commercialization (Grieves 99). The product life-cycle concept emphasizes the familiar pattern of product sales volume growing slowly, then more rapidly, reaching a peak, tapering off, and declining. At this stage, computer games manufacturer should follow the same price strategies but add new distribution channels. It can sell its product through direct agents and use the Internet stores. It will be useful to use discounts and in-store promotions which persuade a customer to make an immediate purchase. Market Maturity The fourth phase (market maturity) witnesses keener competition, increasing price pressures, and a profit squeeze. More competitors are in the market. The marketing tasks involve insuring a moderate growth and trying to maintain relative competitive position and market share. Since there are more competitors, there is a great tendency for market shares to decline (McDonald and Christopher 79). During market maturity, downward pressures on price build up, companies segment markets further, product and package variations are initiated in an attempt to maintain some growth, and minor product adjustments become important. Strong use is made of promotional activities to maintain market position (Drejer 65). With maturity comes an increasingly saturated market and fairly wellentrenched competition. The manager focuses largely on repeat sales to established customers and on ways to achieve internal cost efficiencies. Customers are increasingly apt to see little real difference among competitive offerings. Competition is more heavily price-based, although head-to-head price wars are likely to be dysfunctional. Frequently, the pricing orientation is to maximize short-term direct product contribution to profit. The manager may use the product as a cash generator, the proceeds of which are used to support newer, growth-stage products. Market decline presents a number of pricing opportunities. For instance, the firm may raise price to take advantage of any remaining market segments that are very price insensitive. The spare parts business for most products provides a good example of these segments. Alternatively, the strategy might be to cut support expenditures and leave price alone, letting the product die a natural death. Another approach might be to cut the price to the break-even level or lower and use the product as a loss leader to help sell complementary products in the line (McDonald and Christopher 80). During this stage, distribution channels remain the same but the company will change its promotion campaign. It will be effective to introduce bonus system for new buyers and use sponsorship as the main promotion tool. Products now seem to mature more rapidly, and their life cycles are getting shorter. This means that product lines will have to be audited more carefully and strategies directed to capitalize on the life-cycle situation. Firms too often only pay attention to current problems, neglecting life-cycle considerations and the impact of marketing strategies (McDonald and Christopher 81). Market Decline The last phase, market decline, is one in which the competition is keenest, profits are limited, and new products move in to take over the market. The tasks perceived here are those of retaining whatever profitable market position one can, and preparing to exit from the market. Among the relevant marketing activities are price-cutting, product modifications, promotional pressures, and reorientation to new market opportunities. Marketing should make the companies well aware of new opportunities before decline sets in. At this stage, the price can be reduced in order to attract more customers (Stark 121). A consideration of market-opportunity phases and related marketing activities indicates that companies enter markets that are in different phases of development. Some companies may be innovators and others may be cut-rate operators that concentrate on phases four and five. The result is that at a point in time, a variety of competitive situations confront an organization and require different strategies. When one considers the wide assortment of company products facing various market opportunity phases, and the changes in these markets over time, the complexity of designing marketing programs comes into sharper focus. Direct e-mail and direct selling will help the company to sustain its brand image and improve sales. These strategies will help to save costs on advertising but remind consumers about the brand and the product uniqueness (Stark 123). Conclusion A computer games manufacturer should take into account that different market segments come into play in each stage, perhaps with differing price sensitivities. The basic idea is that strategies should be modified to reflect changing market conditions as a product evolves from its initial introductory stage through growth, competitive turbulence, maturity, and decline. At the introductory phase, products may be unprofitable; during the period of most rapid growth, profits reach their peak; and as competition sets in, even though sales may be increasing, profits decline and are eventually squeezed out. strategy should be related to profit curves. Studies of what competitors have done in the past, coupled with detailed analyses of the current competitive situation, may furnish guides on what they are likely to do. Works Cited Drejer, A. Strategic Management and Core Competencies: Theory and Application. Quorum Books, 2002 Crawford C. Merle. New Products Management. Irwin-McGraw Hill. 7th edition, 2003. Grieves, M. Product Lifecycle Management: Driving the Next Generation of Lean Thinking. McGraw-Hill; 1 edition, 2005. McDonald M., Christopher M. Marketing: A complete Guide. Palgrave Macmillan, 2003. Stark, J. Product Lifecycle Management: 21st century Paradigm for Product Realisation. Springer; 1 edition, 2004. Appendix 1. Product Life Cycle Read More