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@ The PLC reflects sales & profits of a product over a period of
time.
@ They generally follow an established S-shaped curve.
@ The PLC concept helps the managers to interpret product and
market dynamics.
@ It is a useful forecasting tool.
@ It can also be used for planning & control.
@ To say that a product has a life cycle is to assert four things:
1. Products have a limited life.
2. Product sales pass through different stages each posing different
challenges, opportunities and problems to seller.
3. Profits rise and fall at different stages of PLC.
4. Products require different strategies in each life cycle stage.
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Since it takes time to roll out a new product:
@ Sales growth tends to be low.
@ Profits are negative.
@ Promotional expenditures are at their highest ratio to
sales because of the need to:-
a. Inform potential customers
b. Induce product trial
c. Secure distribution in retail outlets
@ Prices tend to be high because costs are high.
@ Focus is on those buyers who are the most ready to buy,
usually the higher income groups.
@ Firms planning to introduce a new product must decide
when to enter the market.
@ Speeding up innovation time is essential.
@ Marked by rapid climb in sales.
@ Early adopters like the product and additional customers start
buying it.
@ Competitors enter attracted by the opportunities.
@ Prices stabilize or fall slightly depending on demand.
@ Sales rise much faster.
@ Profits increase and unit manufacturing costs fall.
@ Several strategies are used by the firm to sustain rapid growth:
a) Improvement in product quality & styling.
b) Adds new product features.
c) Enters new market segments.
d) Increases its distribution coverage & enters new distribution
channels.
e) Shifts from product awareness advertising to product preference
advertising
f) It lowers the prices to attract the next layer of price sensitive buyers.
º¦
At some point, the rate of sales will slow down and the product
will enter a stage of relative maturity. This stage normally lasts
longer & is divided into three phases:
@ Growth maturity Ȃ
1. The sales growth rate start to decline.
2. No new distribution channels to fill.
@ Stable maturity Ȃ
1. Sales flatten on a per capita basis because of market saturation.
2. Most potential customers have tried the product.
3. Future sales are governed by population growth & replacement
demand.
@ Decaying maturity Ȃ
1. The absolute level of sales starts declining.
2. Customers begin switching to other products.
This phase is marked by slowing of growth rates in sales &
profits & cutthroat competition.
¦
@ Sales decline for a number of reasons like technological
advancements, shift in consumer tastes & increased
competition.
@ All leads to overcapacity, increased price-cutting & profit
erosion.
@ The decline may be slow or rapid.
@ Some firms withdraw from the market.
@ In this stage, five strategies are available to the firm:
1. Increasing the firmǯs investment.
2. Maintaining the investment level until uncertainties about the
industry are resolved.
3. Decreasing the firmǯs investment level selectively while
simultaneously strengthening the investment in lucrative niches.
4. Harvesting the firmǯs investment to recover cash quickly.
5. Divesting the business quickly by disposing of its assets as
advantageously as possible.
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@ Sales grow rapidly when the product is introduced, then fall to a Dzpetrifieddz
level that is sustained by late adopters buying the product for the first time
and early adopters replacing the product.
@ Often characteristic of small kitchen appliances such as handheld mixers and
bread makers.
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Characteristics:
Sales Low Rising Peak Declining
Costs High Average Low Low
Profits Negative Rising High Declining
Customers Innovators Early Middle Laggards
adopters majority
Few Growing no. Stable no. Declining no.
Competitors
Marketing Create product Maximize Maximize Reduce
Objectives awareness & trial. market share. profit while expenditure &
defending milk the
mkt. share. brand.
Strategies:
Product Basic product Product Diversify Phase out
extension brands weak
Cost plus charge To penetrate To match Cut price
Price
Market competitors
Selective Intensive More intensive Selective
Distribution