Multimedia Marketing/Marketing.iso/market/chapter5.2p

Text File | 1996-08-22 | 12KB | 271 lines

SECTION 5.2  Product Life Cycles

INSTRUCTIONS We realize that plants and animals go through life cycles. Try to
imagine how products go through these same stages.

EXAMPLE

The personal computers offered by a large company have gone through
a definitive cycle that resembles the patterns followed by humans
as they pass from infancy to growth to maturity and finally to
decline. The firm was formed by several computer technologists who
developed a product that was very user friendly. The computers were
rapidly sought after by consumers and for a time the company was
very prosperous. Later competition set in and the firm experienced
production and marketing problems which reversed the trend and sales
leveled off and then dropped sharply. This company literally went
through a life cycle with its product.

DETAILS

The sales and profitability of products typically change over time
in an orderly manner, termed the "product life cycle". Many examples
illustrate these cycles. Products as diverse as streetcars, trains,
piston-powered commercial airplanes, manual typewriters, hand-crank
telephones, and many others have experienced a fluctuation from
rapid growth to decline. Business history books are full of examples
of this cycle.

The time it takes for a life cycle to be completed differs from
one product to another. Fad items such as clothing styles typically
have very short life cycles, perhaps only months or weeks. At the
other extreme, products like sheet steel and gasoline have lengthy
cycles spanning decades. There is evidence that the average length
of product life cycles is shortening over time. Management has the
task of distinguishing between fads and true marketing trends, of
course, as trends are more lasting and have general marketing planning
implications.

Experts differ on what factors determine if a product is a fad or
a genuine new fashion. Basically, most agree that fads do not really
satisfy basic needs. Rather, they provide amusement, novelty, topics
of conversation, means of being different from others, and other
relatively insignificant rewards, as compared to longer lived products
that satisfy more important needs, such as health and safety. Still,
even the experts have trouble predicting how long a product life
cycle will last.

The stages are introduction, growth, maturity, and decline. In the
introduction stage a company introduces a new product to a market.
This is a period usually marked by low sales and losses instead of
profits, because introduction usually requires a heavy financial
investment in marketing to create product awareness, and investments
in other areas such as production and research and development. Some
new products , such as industrial robots , diffuse very slowly into their
potential markets, while other products virtually bypass this stage.

The second stage of the product life cycle is that of growth, which
is marked by increasing profits and sales. Because rapid growth in
sales and increasing profits signal the existence of opportunity
to other firms, increasing competition from other items in the same
generic class often evolves as the stage progresses. Rapidly expanding
demand may be sufficient, however, to enable several competitors to
maintain prices and earn good profits.

PROBLEM 1

A cosmetic manufacturer is introducing a new line of shampoos.
Management can expect that, during the introductory period:

A. Investments in marketing will be very moderate.
B. Company profits will be high.
C. Sales levels will be large.
D. Investments in research and development will be large.

WORKED

If a cosmetic manufacturer is introducing a new line of shampoos,
management can expect heavy investments in research and development.
It can be very expensive to make technical and marketing studies and
to translate the results of these studies into salable products.
This is especially true in the cosmetics and health and beauty
industries, where competition is rigorous and new products must have
very substantial advantages over rivals, in order to gain a foothold
in the market.

ANSWER  D
INSTRUCTIONS We realize that plants and animals go through life cycles. Try to
imagine how products go through these same stages.

EXAMPLE

The personal computers offered by a large company have gone through
a definitive cycle that resembles the patterns followed by humans
as they pass from infancy to growth to maturity and finally to
decline. The firm was formed by several computer technologists who
developed a product that was very user friendly. The computers were
rapidly sought after by consumers and for a time the company was
very prosperous. Later competition set in and the firm experienced
production and marketing problems which reversed the trend and sales
leveled off and then dropped sharply. This company literally went
through a life cycle with its product.

DETAILS

A marked change occurs during maturity. At the start, sales increase
but at a declining rate, eventualy peaking and then declining a bit.
Profits also begin to fall. This is the status of many basic industries
today, including steel, asbestos and copper. They find themselves
in a dangerous position because, if trends continue, they may suffer
severe financial losses or even have to drop major product lines or
go out of business if the decline is too severe.

Several factors account for the sales deceleration. For one, customer
awareness of the product has generally reached a high level by this
stage. For another, the product may be losing its appeal; perhaps
new substitutes have emerged. Finally, competition tends to be greater
than during any other stage of the product life cycle, reflected in
some firms' heavy price cutting.

PROBLEM 2

A producer of coffee concentrate believes that its major brand has
reached maturity. Which of the following is not one of the signals
that it has, in fact, reached that stage?

A. Sales increase at the start of the period but at a decreasing rate.
B. Customer awareness of the product is not substantial.
C. Rivals have introduced new substitutes.
D. Competitors engage in heavy price cutting.

WORKED

If a producer of coffee concentrate believes that its major brand
has reached maturity, customer awareness of the product has usually
reached a high stage. The brand has been around for a long time
and most people realize that it exists. But, it has become so familiar
that it does not excite anyone--the steak has lost its sizzle. Many
consumers become tired of old products and for sheer variety sake
look at newcomers to the market.

ANSWER  B
INSTRUCTIONS We realize that plants and animals go through life cycles. Try to
imagine how products go through these same stages.

EXAMPLE

The personal computers offered by a large company have gone through
a definitive cycle that resembles the patterns followed by humans
as they pass from infancy to growth to maturity and finally to
decline. The firm was formed by several computer technologists who
developed a product that was very user friendly. The computers were
rapidly sought after by consumers and for a time the company was
very prosperous. Later competition set in and the firm experienced
production and marketing problems which reversed the trend and sales
leveled off and then dropped sharply. This company literally went
through a life cycle with its product.

DETAILS

The final life cycle stage is decline. It can occur rapidly, perhaps
within weeks or months after the introduction, as in the case of
fad items, or it might not set in for decades with products like
asbestos insulation. Research shows that industrial goods tend to
have a longer life cycle than do consumer goods. Life cycle theory
proposes that all products eventually will enter into a decline
stage.

Management should thoroughly investigate the prospects for a product
before it is decided that it is in decline. Sometimes an offering
will experience a temporary fall in sales that is due to competitive
efforts, an unhealthy economy, rumors about the product, or other
forces that are not permanent. The product may recover after these
environmental changes have run their course. Management is well-
advised to study the situation carefully before pronouncing the
product as being in decline and becoming a candidate for abandonment.


PROBLEM 3

A manufacturer of work clothes for blue collar workers is eyeing a
new industry--women's dress clothing.  What product life cycle
behavior would you expect?

A. A very short product life cycle.
B. A very long product life cycle.
C. A product life cycle that has no decline.
D. A product life cycle where maturity is never reached.

WORKED

A manufacturer of work clothes for blue collar workers is eyeing a
new industry--women's dress clothing. In this case the product
life cycle probably will be short. This is an industry where
fashion is very important--and last year's fashion is usually passe.
Many of the fashions turn out to be fads and last only a very short
time. Others never do anything and move directly from introduction
to decline. It is apparent that this is a very risky industry for
the firm to enter. On the other hand, many companies earn very high
returns on investment in this industry. If management is willing to
gamble, this may be a good target. A conservative management
probably will find the risks to be too great, however.

ANSWER  A
INSTRUCTIONS We realize that plants and animals go through life cycles. Try to
imagine how products go through these same stages.

EXAMPLE

The personal computers offered by a large company have gone through
a definitive cycle that resembles the patterns followed by humans
as they pass from infancy to growth to maturity and finally to
decline. The firm was formed by several computer technologists who
developed a product that was very user friendly. The computers were
rapidly sought after by consumers and for a time the company was
very prosperous. Later competition set in and the firm experienced
production and marketing problems which reversed the trend and sales
leveled off and then dropped sharply. This company literally went
through a life cycle with its product.

DETAILS

Certain conditions demark the decline stage. These can signal to
management if a fall in sales represents a true decline or only
a temporary effect.

The decline stage can be a very dismal one for the firm.
More and more customers purchase less or stop buying the item as
the stage progresses. Automobiles have replaced horse-drawn wagons
and hand-held calculators have supplanted slide rules. Consumers
still are aware of the product categories but they do not see
where they satisfy significant needs. And some consumers may simply
be bored with the offerings.

As sales begin to fall, the less profitable firms begin to abandon
the market because they are forced out of business or they pursue other
opportunities. Many remaining firms lower their prices to inhibit
further losses. Also, they often cut promotion expenditures due to
restrictive budgets and high levels of competition among target
members.

PROBLEM 4


The marketing manager for a baby food producer argues that the
main product line is in decline. Which of the following would
indicate otherwise?

A. The more profitable firms tend to abandon the market.
B. Many companies lower their prices.
C. Many firms cut promotion expenditures.
D. There is high level of product awareness among target customers.

WORKED

The marketing manager for a baby food producer might argue that
the main product line is in decline. An important symptom for this
condition is that less profitable firms tend to abandon the market.
Their costs are often high and reductions in revenue push per unit
costs upward, driving profits down still further. They experience
further losses as industry prices fall and put pressure on them to
reduce their own prices. Declining revenues also frequently lead
them to lower their promotion budgets, further decreasing demand for
their products. They may be caught up in a downward swirl, where the
only available action is to leave the industry.

ANSWER  A