subject business economics paper no and title 15, product

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BUSINESS ECONOMICS

PAPER NO. : 15, MARKETING MANAGEMENT

MODULE NO. : 7, MANAGEMENT THROUGH PRODUCT LIFE CYCLE AND THE CONCEPT OF PRODUCT MIX

Subject BUSINESS ECONOMICS

Paper No and Title 15, Product and its management

Module No and Title 7, Management through Product Life Cycle and the Concept

of Product Mix

Module Tag BSE_P15_M7

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TABLE OF CONTENTS

1.LearningOutcomes

2. Concept of Product Life Cycle

2.1 Introduction Stage

2.2 Growth Stage

2.3 Maturity Stage

2.4 Decline Stage

3. Theory of Innovation Diffusion and Consumer Adoption

3.1 Awareness

3.2 Interest

3.3 Evaluation

3.4 Trial

3.5 Adoption

4. Marketing Strategies for the Product’s Life Cycle

4.1 The Product Life Cycle Stages

4.1.1 Stage 1: Introduction Stage

4.1.2 Stage 2: Growth Stage

4.1.3 Stage 3: Maturity Stage

4.1.4 Stage 4: Decline Stage

4.2 Summary of the Product Life Cycle

5. The Concept of Product Mix and Product Line

5.1 Product mix

5.2 Product line

5.3 Length of product mix

5.4 Width of product mix

5.5 Depth of product mix

6. Constant Appraisal of Each Product/Brand in the Line

7. Summary

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1. Learning Outcomes

After studying this module, you shall be able to

Understand the concept of product life cycle

Identify the theory of diffusion and adaptation

List out the objectives of the product life cycle

Analyse the characteristics of the various stages of product life cycle

Determine the marketing strategies followed by marketers at various stages of the

product’s life cycle

Define the concept of product mix and product line

2. Introduction

Concept of product life cycle

The moment a product is commercialised, it enters into its life cycle. A product is like a human

being. It is born, grows up fast, matures and then finally passes away. The product life cycle

discusses the stages which a product has to go through since the day of its birth to the day it is

taken away from the market. A new product progresses through a sequence of stages from

introduction to growth, maturity and decline. This sequence is known as the Product Life

Cycle and is associated with the changes in the marketing situation, thus impacting the marketing

strategy and the marketing mix. Companies have to design different marketing strategies for their

products as they enter the various stages of the product life cycle.

3. Theory of Innovation Diffusion and Consumer Adoption

The theory of innovation diffusion and consumer adoption of innovations provides the basic

rationale for the Product Life Cycle. As depicted in Figure 1.1, when a new product is launched in

the market, people hardly know about it. Therefore, it becomes important for the company to—

1. First spread awareness about the product;

2. Generate interest in them;

3. Help then evaluate the product carefully

4. Induce trial of the product; and

5. Finally adopt the product and make full and regular use of the innovation.

This whole process takes time, and in the introductory stage only a few persons (innovators)

generally buy the product. These are enthusiastic people who would like to buy a new product. If

the product is satisfying, a positive message spreads and a larger number of buyers (early

adapters) are drawn in. At this stage, the competitor enters the market resulting in increasing the

market’s awareness and causing the prices to fall. As a result of this, more buyers start buying the

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product at the growth stage (early majority), and after listening to their positive feedback some

more (late majority) buyers also join in. But after a certain point of time, generally at the maturity

stage, the number of potential new buyers approaches zero, as all those who were interested to

buy the product are already buying, sales become stagnant and only few (laggards) join the

customer base. Eventually, sales decline as new and better product choices emerge in the market

and divert the consumer’s interest from the existing products and they start buying the newer

options. That is how the product life cycle is explained by normal developments in the diffusion

and adaptation theory of new products.

Figure 1.1: Theory of innovation diffusion and consumer adoption.

4. Marketing Strategies for the Product Life Cycle

4.1 The Product Life Cycle Stages

There are four basic stages in the product life cycle— Introduction, Growth, Maturity and

Decline. Figure 1.3 nicely depicts the sales and profit levels during the four stages of the Product

Life Cycle. It is quite apparent from the figure that the sales start from zero level and with a slow

start in the introduction stage, accelerates at an increasing rate during the growth stage, followed

by stagnation at the maturity stage and falling sales during the decline stage. Similarly, the profit

curve starts from the initial losses, reaches the breakeven level and then starts increasing at the

introduction stage, increases at a rapid pace during the growth stage, reaches its highest point

somewhere near the maturity stage, starts declining during the stable maturity stage and continues

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to decline at the decline stage. As the sales and profit curve behave differently during the

different stages, it becomes important for the marketers to design appropriate strategies to handle

the product during the various stages.

Figure 1.2: Product life cycle.

4.1.1 Stage one: Introduction Stage

Stage one is where the new product is launched in the market. As the product is new, nobody

knows about it and the marketers have to work very hard to get the product introduced and

noticed in the market. The length of the introduction stage varies from product to product

depending on various factors discussed in the preceding paragraphs.

Characteristics of Introduction Stage:

Decisions regarding the product branding, packaging and labeling are made, and patents (if

any) and trademarks are obtained.

As the product is new and the company is not sure of its success, it introduces the basic

version of the product in the market.

Huge investments are made in the production, distribution and promotion of product in the

market.

Costs are high due to low initial sales.

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Pricing may be low-penetration pricing to build market share rapidly, or high-skimming

pricing to recover developmental costs fast.

Slow growth of sales because of lack of awareness among the consumers.

Distribution is selective until consumers show interest in the product.

Huge efforts are made to attract dealers and fill the pipelines.

Aggressive promotional efforts are made aimed at innovators and early adopters. Marketing

communications seek to build product awareness and to educate potential consumers about

the product.

There are only few competitors.

Marketers adopt any one of the Following Strategies:

I. Rapid skimming strategy–Launching the new product at a high price with a high

promotional level. This strategy is adopted when people are unaware about the product,

company wants to build the image of a prestigious product, and they are confident of the

fact that consumers can pay the high price for that product.

II. Slow skimming strategy–Launching the new product at a high price with low promotion.

It is used when market is limited in size, people already know about the product, are

willing to pay high price and potential competition is not imminent. For example, the

launch of I-Phone 6 in Indian markets.

III. Rapid penetration strategy–Launching the product at a low price and spending heavily

on promotion. This strategy works when the market is large, unaware of the product, and

buyers are highly price sensitive. There exists a strong potential competition and the

marketer is planning to reduce the unit manufacturing cost with increasing turnover.

Thus, the focus is on targeting a large market share and earning profits through

generating volume. For example, the introduction of new breakfast cereals in the market.

IV. Slow penetration strategy–Launching the new product at a low price and low level of

promotion. Marketers use this strategy in case when market is large and people are highly

aware of the product. The product is generally basic in nature and people want to buy it

on their own. It is price sensitive and there is very little potential competition existing,

such as in case of selling salt, sugar, pulses, etc.

4.1.2 Stage 2: Growth Stage

The growth stage is marked by a rapid climb in sales and profits of the company. Early adapters

like the product and the middle majority consumers start following their leads. The firm seeks to

build brand preference and increase market share. There is increasing demand in the market, sales

curve starts moving upwards and the product starts showing profits. This is a stage which attracts

competitors as they would also like to take the advantage of increasing profitability in that

product category. Thus, special care is needed to ensure that it does not affect the growth stage of

the product.

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Characteristics of Growth Stage:

Rapid climb in sales; early adaptors and middle majority can follow the leader.

New competitors enter the market attracted by large scale production and profit.

Pricing is maintained as the firm enjoys increasing demand with more and more

customers coming forward and buying their products.

Some of the companies may purposefully lower the prices in order to discourage the

entry of competitors.

Profits increase during this stage as promotion costs are spread over a large volume and

unit manufacturing cost falls faster.

Promotion is aimed at a broader audience.

Companies maintain their promotional expenses at the same level or slightly raised level

to meet competition and continue educating the market.

Sales rise much faster, causing a decline in the promotion-sales ratio.

Marketers use the Following Strategies at this stage:

I. Product quality is maintained, and additional features and support services may be added.

II. New improved models of the product may be introduced.

III. Companies tend to enter new market segments and increase their distribution network as

demand increases and customers accept the product.

IV. The nature of advertising shifts from product awareness to bringing about product’s

conviction and purchase.

V. The company may lower prices at the right time to attract the next layer of price sensitive

consumers.

4.1.3 Stage 3: Maturity Stage

At the maturity stage, the rate of sales growth slows down and the product enters a stage of

relative maturity. This stage poses formidable challenges to marketing management.

The maturity stage can be divided into three phases:

1. In the first phase, growth-maturity, the sales-growth rate starts to decline because of

distribution saturation. There are no new distribution channels to fill, although some laggard

buyers still enter the market.

2. In the second phase, stable maturity, sales come at par on a per capita basis because of market

saturation. Most potential consumers have tried the product and future sales are governed by

population growth and replacement demand.

3. In the third phase, decaying maturity, the absolute level of sales now starts to decline and

customers start moving towards other products and substitutes.

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Characteristics of Maturity Stage:

The slowdown in the rate of sales growth creates overcapacity in the industry, which leads to

intensified competition.

The industry eventually consists of well-entrenched competitors whose basic drive is to gain

competitive advantage.

Sales become stagnant.

Profits start to decline.

Marketers have to resort to the following Strategies:

I. In order to sustain the sales at a constant level, the company might have to add new or

improved product features to differentiate their product from that of the competitors.

II. They will have to convert non-users into users – for example, try to encourage non-

coffee drinkers to drink coffee.

III. They can suggest frequent uses of their products – for example, the shampoo company

tries to introduce frequent uses of shampoo to have nice, silky and glowing hair.

IV. Even more usage per occasion can be recommended – for example, Milkmaid distributing

Milkmaid recipe books free to the customers to suggest frequent and more usage of their

product in various recipes.

V. A company will have to try hard to win over the competitors customers.

VI. Prices may have to be reduced to attract the price-sensitive consumers away from the

competitor.

VII. Distribution becomes more intensive and incentives may be offered to the middlemen, to

encourage them to hold their product over competing products.

VIII. Promotion emphasizes product’s differentiation over that of the competitors’.

IX. Various sales promotion incentives are introduced for the consumers as well as dealers to

maintain their interest in the product.

4.1.4 Stage 4: Decline Stage

At this stage, market is saturated. Sales and profits eventually decline. Decline may be slow or

rapid.

Characteristics of the Decline Stage:

Sales may plunge to zero or they may remain at a low level and continue for many years.

Sales decline for a number of reasons, including technological advances, consumers’ shift in

taste, and increased domestic and foreign competition, overcapacity, increased price cutting

and profit erosion.

Profits start declining and at times become negative.

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As sales and profits decline, the firm can resort to the following marketing strategies:

I. The product can be maintained in the market for some more time by adding certain new

features and finding new uses.

II. The company can continue to offer the product to its loyal customers at a reduced price.

III. They can even discontinue the product.

IV. Use the product as replacement product for launching another new product successfully

in the market.

V. The various marketing decisions in the decline phase will depend on the fact that,

whether it is being rejuvenated, or given a new lease of life, or left unchanged if it is

being liquidated.

VI. The price may be maintained or reduced drastically if liquidated.

4.2 Summary of the Product Life Cycle

Table 1.1: Objectives of the Product Life Cycle

Table 1.2: Characteristics of the Product Life Cycle

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Table 1.3: Strategies of the Product Life Cycle

5. Product Mix and Product Line

Product mix is sum total of all the products manufactured or traded by some business house to

reinforce their presence in the market, increase market share and increase the turnover for more

profitability. For example, if we take the case of Hindustan Unilever, their product mix consists

of fabric wash segment, hair care, skin care, oral care, household cleaning and other product lines.

The Product Mix and Product Line of Hindustan Uni liver Ltd. (HUL) are depicted in Figure 1.4.

Product mix and product line are two expressions used in connection with the range and variety

of the products of a firm.

5.1 Product Mix

It is a larger entity. It denotes the complete set of all products offered for sale by a company. The

product mix of a company is composed of all the product lines it carries.

5.2 Width of Product Mix

This denotes the number of product lines it carries. It can also be termed as line extension, which

means introducing a new product line, just like Mercedes was manufacturing cars; when it started

to manufacture its bikes, it was line extension. Line extension can be upward or downward. In

case of Mercedes, it was downwards.

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5.3 Product Line

It is a group of closely related products that are considered to be a unit because of marketing,

technical or end-use considerations. For example, all the toilet soaps of Hindustan Unilever like

Dove, Pears, Lux, Liril, Rexona, Hamam, Lifebuoy and Breeze form a product line under

personal wash category.

5.4 Length of Product Line

This is decided by the number of items in a product mix.

5.5 Depth of a Product Line

It denotes the total number of items under each brand in the line in terms of variants, shades,

models, pack sizes, etc.

Product mix = all of the products we offer for sale

Product line = a group of closely related products

Length of product mix = the number of items in the product mix

Width of product mix = the number of product lines carried

Depth of product mix = number of variants offered in a product line

Figure 1.3: HUL’s product mix and product line.

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6. Appraisal of Each Product/Brand in the Line

It is very important for a growing business to undertake constant appraisal of their existing

product lines. Appraisal is required to check the validity of the products in light of the changes in

business environment and the competitive forces. With time, some of the products become

obsolete, while at times the entire product line may become outdated. Companies try to measure

the market acceptance of their products from time to time in order to find out their popularity

amongst the consumers. Some of the products are required to be withdrawn from the market due

to functional obsolescence, which can occur because of the changing fashion or the upcoming of

new / improved substitute products due to new and improved technologies. Therefore, there

should be constant appraisal of each product in the product line and of each member/brand in the

line.

The decisions may include withdrawal of the product in one case, stricter quality control in

respect of another, giving an independent brand name to a product, and improving the utility of a

product by adding a few features to it, or introducing a new product altogether, in yet another

case.

7. Summary

The product life cycle discusses the stages which a product has to go through since the day of

its birth to the day it is taken away from the market.

A new product progresses through a sequence of stages from introduction to growth, from

growth to maturity and then to decline.

Each stage is associated with changes in the marketing situation, thus impacting the

marketing strategy and the marketing mix.

Companies have to design different marketing strategies for their products as they enter the

various stages of the product life cycle.

When a new product is launched in the market, people hardly know about it. Therefore, it

becomes important for the company to first spread awareness about the product; generate

interest in them; induce trial of the product; and finally initiate purchase action.

In the product’s life cycle, sales start from zero level and with a slow start in the introduction

stage, accelerates at an increasing rate during the growth stage, followed by stagnation at the

maturity stage and falling sales during the decline stage.

Similarly, the profit curve starts from the initial losses, reaches the breakeven level and then

starts increasing at the introduction stage, increases at a rapid pace during the growth stage,

reaches its highest point somewhere near the maturity stage, starts declining during the stable

maturity stage and continues to decline at the decline stage.

At the introduction stage, the marketers have to work very hard to get the product introduced

and noticed in the market.

At the growth stage, there is increasing demand in the market, sales curve starts moving

upwards and the product starts showing profits.

At the maturity stage, the rate of sales growth slows down and the product enters a stage of

relative maturity.

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At the decline stage, market is saturated. Sales and profits eventually decline and the firm

might have to withdraw the product from the market.

Product mix is sum total of all the products manufactured or traded by some business house

to reinforce their presence in the market, increase market share and increase the turnover for

more profitability.

Product line is a group of closely related products that are considered to be a unit because of

marketing, technical or end-use considerations.

Firms need to do a constant appraisal of each product in the product line in order to check the

validity of the products in light of the changes in business environment and the competitive

forces.

subject business economics paper no and title 15, product

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