This video explains the various stages that a typical product will go through
and what a business can do to increase demand during each stage, using coca-cola
and Apple's iPhone as real-life examples.
The product life cycle is an important concept in marketing it describes the
stages the product goes through, right from the point that the product is just
an initial design idea in the research and development stage, until the point
that the product is finally removed from the market at the end of its life.
However, it's important to note that not all products reached this final stage,
some continue to grow while others rise and fall very quickly. Ultimately, it is
critical that marketers understand the lifecycle of their product and business
executives should have a plan for dealing with products at every stage of
their lifecycle. So, first of all the product life cycle
starts at the research and development stage, this tends to be very time
consuming and costly as the product has been designed and isn't yet produced.
Therefore, there are no sales, so cashflow is negative at this stage.The next stage
is introduction which is when the product is launched to the market.
Typically the business would invest heavily in marketing and promotion of
the product and cashflow would usually be negative at this stage. Pricing
strategies are important at this stage and both penetration pricing and price
skimming are common strategies used to attract those early adopters or loyal
fans to purchase the product and get the ball rolling. Following the
introduction of the product sales will typically start to grow, Therefore the
growth stage comes next and is where sales start to increase rapidly
alongside demand for the product, also competitors may appear with similar
products as they try to replicate the businesses success. This is typically the
stage in which cash flow starts to turn positive and the business starts to see
a profit from the product. The next stage is maturity which is when demand for the
product starts to stagnate, although the product is typically well established
and well-known at this stage it tends to stagnate as there will also be high
competition in the market. However, a key positive for the business is that the
product is well established so cost of production and investment in marketing is
typically much lower, therefore cash flow tends to still be
positive during this stage. Common strategies during the maturity stage
include managing production levels to ensure the business doesn't over produce
whilst distributing the product to more businesses and retailers to reach a
wider audience commonly with a lower price tag following the maturity of the
product it enters the decline stage within which sales start to decrease and
the market is oversaturated with both competition and availability of products.
This leads to supply being higher than demand which is commonly influenced by
advancements in technology and changes in consumer buying behaviour, therefore it
is typical for a business to experience negative cash flow within this stage,
which eventually leads to the production and marketing of the product being
stopped to minimise costs whilst the price is cut to clearance to sell
off the final batch of units. Now it's very important to understand that a
business can actually prolong the life cycle before it enters the decline stage
through product extension strategies. If you consider the life cycle of Coca Cola
when their original product Coca Cola classic hit the maturity stage they have
had many strategies over the years to extend their brand and their core
product. This is typically through something called a line extension
examples of this include diet coke which is one of the most famous line
extensions for the company mainly targeting females to purchase the famous
soft drink. Then as a trend grew and health concerns around sugar became much
more serious they tried to attract males to a sugar-free alternative by
introducing coca cola zero. Other line extensions include cherry coke and more
recently in 2014 Coca Cola life, which had a very short
life cycle and was taken off sale in 2017 just three years after its release
so Coca Cola could simplify the choice between sugar and sugar-free options in
the UK. Another extension strategy would be
brand extension an example of this would be Coca Cola using their brand to expand
into a new market for example selling a range of chewing gum, essentially using
the brand of coca-cola to help the product become established in a new
market much quicker. Other examples of common extension strategies include
advertising with the aim of gaining and new audience or reminding the current
audience of the product. You've then got price reduction to make the product more
attractive to customers. You've then got adding value to the product such as
adding new features to the current product for example improving the
specifications on a smart phone. Exploring new markets such as selling
the products in new geographical areas or creating a version targeted at different
segments of the market is also quite a commonly used product extension strategy
and one final strategy is new packaging which is used to generate interest and
attract people to the product. Just have a think have you experienced any of
these product extension strategies in your lifetime have you seen any products
that you've been buying for years and all of a sudden they've had a change
whether that's a change in packaging the way they have been advertised to you or
are you getting more of the added value, just have a think whether you've ever
experienced that, it's most likely that you have. So now we will have a look at
the product lifecycle of Apple's iPhone. The iPhone was introduced to the market
in 2007 reporting 1.39 million sales, they hit the Growth stage fairly quickly
increasing from 1.39 million sales in their first year to 11.63 million sales in 2008
that's an increase of 736 %. Apple's iPhone
sales continued to grow for 8 years from 2008 to 2015
surprisingly having their biggest growth in the final year of this stage of the
product life cycle. A staggering increase of 62 million sales on top of 2014's 169
million sales. However, what you can clearly see from 2016 onwards is the
iPhone hitting the maturity stage within which sales actually decrease for the
first time ever a 19.3 million decrease
in unit sales in comparison to the previous year
as you can see sales in 2016 to 2018 have actually plateaued, a clear
indicator that the iPhone is currently in the maturity stage, so the question is
after a very strong first decade what's left for the Apple iPhone will the
product remain in the maturity stage for the next decade or will Apple actually
innovate a brand new concept which will cause the iPhone to enter the decline
stage just like the iPhone did to the iPod. So to finish off, we're just going
to look at a few key advantages and important limitations that should be
considered when making business decisions using the product life cycle. First of
all the product life cycle helps the business to forecast sales trends over
their lifetime, during a products life it allows the business to assess which
stage the product is in which helps the business to adapt their strategy to
increase sales and importantly to minimise the likelihood of it entering
the decline stage. It also allows a business to view its whole product
portfolio across the product life cycle to assess where their next investment is
best spent and it is a very simple tool for a business to use with the more data
a business has the more accurate it becomes. Now moving on to the limitations
that the business should consider when making investment decisions after using
the product lifecycle model, first of all not all products will follow the typical
shape of the life cycle whilst it is common that all products go for each
stage it cannot be assumed that they will, for example some products may excel
through the growth stage for years before hitting the maturity stage, whilst
others made quickly move from the growth stage straight into decline and miss the
maturity stage completely which can happen in instances such as being
replaced by innovation from competitors or demand in the market overall declines
quickly. However, a key consideration for a business is that the product life
cycle is only a prediction, a theory, not an exact science if you like.
Therefore, the product life cycle model should not be used in isolation to make
investment decisions hopefully that's helped you to get to grips with the
product life cycle. If it has, don't forget to like this
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