There are many components, both internal and external, that must be considered within the marketing planning process. In fact, for many marketers creating the Marketing Plan represents one of the most challenging and burdensome tasks they face. Fortunately, over the years marketing academics and professionals have put forth theories, models and other tools that aid planning. Possibly the most widely used planning tool within marketing is the Product Life Cycle (PLC) concept. The basic premise of the PLC is that products go through several stages of “life” with each stage presenting the marketer with different challenges that must be met with different marketing approaches. By understanding a product’s position in the PLC, the marketer may be able to develop more effective plans.
There have been several attempts over the years to define the stages that make up the PLC. Unfortunately, the PLC may be different for different products, different markets and different market conditions (e.g., economic forces). Consequently, there is not a one-model-fits-all PLC. Yet there is enough evidence to suggest that most products experience patterns of activity that divide the evolution of the product into five distinct stages. These stages are:
- Development – Occurs before the product is released to the market and is principally a time for honing the product offering and preparing the market for product introduction.
- Introduction – Product is released to the market and sales begin though often gradually as the market becomes aware of the product.
- Growth – If the product is accepted it may reach a stage of rapid growth in sales and in profits.
- Maturity –At some point sales of a product may stabilize. For some products the maturity phase can be the longest stage as the product is repeatedly purchased by loyal customers. However, while overall sales may grow year-over-year, percentage sales increases may be small.
- Decline – All products eventually see demand decline as customers no longer see value in purchasing the product.
Levels of Analysis of the PLC
The Product Life Cycle is commonly referenced in many business publications as a way of describing the current conditions facing a market or product. The fact it is used to describe either markets or individual products points out the need to understand the different levels of analysis for which the PLC can be used. These levels include:
- Product Category – This level considers the macro market view for the general category of products that meet a general need. For instance, automobiles would be a general category that meets the need for personal motorized transportation (obviously there are others, such as motorcycles, scooters and trucks but we will focus only on automobiles) and includes hundreds of products. Since the PLC for a product category includes sales for all products, the timeframe for the automotive PLC is quite long with the Introduction stage beginning around 1900.
- Product Form – This level looks at product groupings that fall within a product category. The product form contains many different groupings that, taken together, make up the product category. These groupings include products that not only satisfy the general need of the product category, but do so by also offering additional benefits. In our example, hybrid cars would be a product form, since it satisfies the general need for personal motorized transportation and offers additional benefits in the form of fuel efficiency and environmental friendliness. Other product forms in the product category include sports cars, minivans, luxury sedans, etc. Clearly there can be a unique PLC for each form of a product. Marketers are very concerned with analysis at this level since it provides evidence for what is occurring in specific markets and for this reason is considered the most important level of analysis.
- Individual Brand – This level concerns the life cycle of a specific brand within a product form. In our example this would include the Toyota Prius. While it may seem marketers would be most concerned with this level, they actually gain more value from analyzing what is happening in the overall market (i.e., product form). For instance, a marketer may make a serious mistake if he or she assumes the entire market has entered the Decline stage just because their company’s brand has seen a sales drop. Doing so may mean a total misread of what is happening in the market and lead to the marketer missing out on additional opportunities if the market for the product form is still growing.
We should note that in most cases the PLC considers what is happening for the total market (i.e., worldwide sales). However, more information could be obtained by applying the concepts of the PLC to individual market segments, such as geographic regions or customer characteristics (e.g., by age, education level, etc.).
Adoption of New Products
The PLC is tied closely to the concept of Diffusion of Innovation, which explains how information and acceptance of new products spread through a market. As we discussed in the Managing External Forces tutorial, innovation is anything new that solves needs by offering a significant advantage over existing methods (e.g., other products) customers use. Innovation can encompass both highly advanced technology products, such as new computer chips, and non-technological products, such as a new soft drink. In fact, the seminal work of the Diffusion of Innovation concept occurred in the 1950s when researchers in the agricultural industry observed how new corn seeds were adopted by farmers in Midwest U.S. states. For marketers a key concept to emerge from research on new product diffusion is the identification of adopter categories into which members of a market are likely to fall. These categories include:
- Innovators – Represent a small percentage of the market that is at the forefront of adopting new products. These people are often viewed as enthusiasts and are eager to try new things, often without regard to price. While a good test ground for new products, marketers find that Innovators often do not remain loyal as they continually seek new products.
- Early Adopters – This group contains more members than the Innovator category. They share Innovators’ enthusiasm for new products though they tend to be more practical about their decisions. They also are eager to communicate their experiences with the Early Majority (next group) and because of their influence they are important to the future success of the product (i.e., act as opinion leaders).
- Early Majority – This represents the beginning of entry into the mass market. The Early Majority account for up to one-third of the overall market. The Early Majority like new things but tend to wait until they have received positive opinions for others (i.e., early adopters) before purchasing. Adoption by the Early Majority is key if a new product is to be profitable. On the other hand, many new products die quickly because they are not accepted beyond early trials by Innovators and Early Adopters and never reach mass market status.
- Late Majority – Possibly as large as the Early Majority, this group takes a wait-and-see approach before trying something new. Marketers are likely to see their highest profits once this group starts to purchase.
- Laggards – This is the last group to adopt something new and, in fact, may only do so if they have no other choice. Depending on the market this group can be large though because of their reluctance to accept new products marketers are not inclined to direct much attention to them.
Adopter Categories and the PLC
The adopter categories help explain the shape of the life cycle for many products. For instance, consider how a new household cleaning product may become successful. First, Innovators may experience the product during the developmental stage and then become the key targeted customers at the beginning of the Introduction stage. Early Adopters will also be targeted during the Introduction stage and their adoption will determine whether the product makes it to the Growth stage. If the product survives the Innovator and Early Adopters it moves to the Growth stage where acceptance by the Early Majority means the product is entering the mass market. The product can continue to be successful as it is adopted by the Late Majority and, to a much lesser extent, by Laggards. Eventually product sales decline as Innovators and Early Adopter move to something new and the cycle starts over.
It should be noted that an assumption of a person’s placement in a certain adopter category for one product does not imply that person will also occupy the same category for other products. For example, someone who is an Innovator for one product may be a Laggard for another. However, with research, marketers may find that an individual’s adopter classification for one product applies across a similar set of products. For instance, those classified as Innovators for computer hardware may have a high probability of being categorized the same for computer software. This assumption may be necessary as a software company develops its target marketing strategies in advance of the launch a new product.
Finally, it should be noted that each adopter category may consist of multiple smaller market segments. For example, the Early Majority is made up of smaller markets that can be segmented on variables such as geography, age, income, etc.
The PLC and Marketing Planning
With a basic understanding of the PLC, we now turn to how this is used in marketing planning. As we will see, the PLC helps the marketer understand that marketing decisions must change as a product moves from one stage to another. For example, marketers will find that what works when appealing to Innovators in the Introduction stage is different than marketing methods used to attract Early Majority during the Growth stage.
For much of the rest of this tutorial we offer a detailed discussion of how the PLC can aid marketing planning. The discussion is presented using the following assumptions and techniques:
- The chief scope of analysis is at the product form level (i.e., what is happening in a specific industry) where we show how certain characteristics of the market change over time. We break down each stage and discuss the market characteristics in terms of
- Level of Competition
- Nuances of the Target Market
- Available Product Options
- Average Price Level
- Promotional Focus
- Distribution Strategy
- Total Industry Profits
- While market characteristics are evaluated for the product form, we offer strategy guidance for individual brands that compete within these specific industries.
- While at the general level the PLC is divided into five main stages, we view most stages as consisting of sub-stages that result from noticeable changes in market characteristics.
Development Stage of the PLC
The Product Life Cycle begins long before a product is brought to market. While technically sales do not start until the next stage, marketers must address many of the same issues they will face once the product is launched. Much of what happens in the Development stage follows our discussion of New Product Development in the Managing Products tutorial, where market research is the key element in planning. Most of what occurs in this stage is experienced only by companies who are on the forefront of innovation of a new product form. In our discussion, the Development stage is divided into two distinct sub-stages: - Early Development
- Late Development
Planning: Early Development Stage
Characteristics:
- Competition: No real competition exists since the product is in early development much of which is in-house and not readily viewable to competitors. However, from a research perspective competitors are now being identified.
- Target Market: The target market exists only in market research terms. Possibly a small number of target customers are used to assist with research.
- Product: The product exists only in the form of ideas and prototypes. Inventory is not yet available.
- Prices: Non-existent unless the company charges research customers a fee to be part of early product testing.
- Promotion: Promotion has yet to occur as companies continue to refine the product form and build their marketing plan.
- Distribution: Mostly limited to internal analysis of possible distribution alternatives, though there may be some communication with a limited number of distribution partners in order to gauge interest.
- Profits: At this stage there are costs only.
Brand Strategy:
For firms developing a new product form this stage is primarily concerned with market research. This stage matches the Concept Development and Testing step for New Product Development. Customers and distribution partners are only involved to aid in information gathering often through focus group research. Because the product form is still in early development the marketer has yet to determine whether the company will move forward with a full product launch.
Planning: Late Development Stage
Characteristics:
- Competition: While a marketer may not face competition in terms of sales, they may face competitive pressure from companies developing similar products, such as competition to acquire materials or technologies for product development, competition to line up product evaluators, and competition to get early word out about the product to the news media. Additionally, competition may exist in the form of other types of products that potential customers currently use to satisfy needs targeted by the new product form. If these competitors are aware that a new product form is being developed, they may increase efforts to sell their product with the intention of reducing the market’s need for the new product.
- Target Market: Companies may test market the product among a small group of customers or within a selected geographic market.
- Product: Companies researching the product form begin to produce small quantities of the product, primarily for testing or to build initial awareness (e.g., for display at trade shows).
- Prices: Initial market price is discussed and if there are active test markets the company may be testing different price levels.
- Promotion: Promotion often begins prior to product launch as marketers prime the market. Emphasis may be on public relations in an attempt to encourage the media to discuss the product prior to launch. If a real test market is used the companies may be using several promotional options including advertising and sales promotion.
- Distribution: For product sold through distributors, the ground work is being laid to build the distribution network. In some cases distributor education and training will start prior to product launch.
- Profits: A small amount of revenue may be generated if real test markets are used, but overall marketers continue to experience substantial costs.
Brand Strategy:
Products that have moved to the late stage of development have done so because market research suggests there is strong potential for success. By this point a marketer has a real product (not just ideas) and is in the position to test it in the market. Consequently, this stage matches the Market Testing step for New Product Development. Firms electing to test their product in real “test markets” will do so using all their marketing tools.
Introduction Stage of the PLC
This stage represents the launch of the new product form by one or more companies. It is done only after the marketer has created a detailed Marketing Plan. In many cases tactical marketing decisions (i.e., product, price, promotion, distribution, and target market) have been adjusted as the product has gone through the Development stage. The Introduction stage is divided into two distinct sub-stages:
- Early Introduction Stage
- Late Introduction Stage
Planning: Early Introduction Stage
Characteristics:
- Competition: In many cases, when two or more companies are working to be first to market with a new product form, one company will be out ahead and for a period of time have the market to itself. However, this does not mean there is no competition. The company that launched the product still faces competition from existing products that customers previously purchased in order to satisfy their needs.
- Target Market: To establish interest in the market for a new product form marketers will initially target Innovators and to a larger extent Early Adopters.
- Product: From the target market’s perspective, product options are limited since only one or a very small number of companies are selling products. Because of the uncertainty in whether the product will be accepted by a larger market and because of the expense involved in producing products in small volume (primarily due to low demand) there are very few product options available.
- Prices: In most cases marketers follow a pricing strategy called price skimming in which price is set at a level that is much higher than can be sustained once competitors enter. Price skimming allows the company to recover development and initial marketing costs before the onslaught of competitors eventually lowers price.
- Promotion: For products considered to be a leap ahead of existing products, early marketers may have some difficulty explaining how the product satisfies customer’s needs. This is particularly an issue with high-tech products. In this situation the marketer must engage in a promotional campaign that is designed to educate the market on the product form and not necessarily push a specific brand. Additional sales promotion may be used to encourage product trial. Also, the sales force may begin a strong push to acquire distributors.
- Distribution: Upon product launch marketers continue efforts to build their distributor network. As we saw in the Development stage, the focus of marketers is to find distributors committed to handling the product.
- Profits: Marketers often experience low profits and most likely a loss as the cost of acquiring customers (i.e., promotion) is high and marketers also need to pay back development expense.
Brand Strategy:
For the early entrants in the market the most important goal is to create awareness for the product form. If customers can see that the product form holds similar characteristics to existing products then the marketer's task is easier since their job becomes one of convincing customers that this new product form is better than what they are currently using.
However, if the product form is significantly different than existing products then the marketers’ job may be far more difficult. Under these conditions the marketer must not only make customers aware of the new product but they must also educate customers as to what the product is, how it works and what benefits are derived from its use. For some products, such as technology products, conveying this message can prove difficult as customers may not fully understand how the product works and, consequently, not see a need for the product. Whether customers understand the product or not, this stage requires promotional spending directed to addressing the need for customer education and building awareness. Also, education and awareness alone are not enough; customers must often be enticed to try a product through special promotional efforts (e.g., free trials).
Planning: Late Introduction Stage
Characteristics:
- Competition: By this stage any company that was alone in launching the new product form is alone no longer, as it is highly likely at least one competitor has entered the market.
- Target Market: Marketers are now engaged heavily in getting a high percentage of Early Adopters to accept the product.
- Product: With competitors entering the choices available to customers expand, though the difference between competitors’ offerings is often not that significant.
- Prices: Product pricing remains high, though any new competitor entering at this stage may attempt to compete with the early entrants by offering a lower relative price.
- Promotion: The promotional message is still one designed to educate the market on the benefits of this new product form but with more competition there is a noticeable increase in the use of advertising that highlights a company’s brand. Also, personal selling and sales promotion have increased especially targeting the channel of distribution as entrants attempt to secure distributors.
- Distribution: The number of distributors continues to increase with many now offering products from several market entrants (which at this point may still be only a few).
- Profits: Losses continue to mount due to high marketing cost and the need to recover development expense. Losses may be even higher than anticipated if the market adopts slower than forecast or if more companies enter than expected.
Brand Strategy:
Early entrants continue to create awareness and educate customers, but their promotional orientation may shift to a "buy-our-brand" approach if more companies enter the market. Thus, at this stage, marketers begin to position their products with the intention of separating themselves from the competition.
Growth Stage of the PLC
The Growth stage is characterized by product sales increasing often at a very rapid rate. This is seen by large percentage sales increases over previous periods (e.g., 50% increase in sales from one quarter to the next). This is an indication the product has advanced beyond Early Adopters and is now being purchased by the mass market (i.e., Early Majority).
It is also the stage when early entrants begin to realize profits, though the fact the market is now profitable invariably leads to increased competition. It is also the time in which competitors try to actively position their brand in a way that will separate it from the onslaught of new entrants. For many products the Growth stage is represented by three distinct sub-stages:
- Early Growth Stage
- Middle Growth Stage
- Late Growth Stage
Planning: Early Growth Stage
Characteristics:
- Competition: Only a few competitors may be in the market as others wait to see whether the mass market will adopt the product. However, competitors selling products customers previously purchased to satisfy needs now addressed by the new product form may be getting very aggressive in their marketing tactics as they sense the new product form to be a threat.
- Target Market: Continued focus is on Early Adopters but marketers begin to identify new market segments that contain the Early Majority.
- Product: A basic product sold to the Early Adopters remains, but plans are underway to introduce products with different configurations, such as more options (e.g., advanced models) and fewer options (i.e., stripped down model). An expanded product line may be necessary to satisfy many different potential segments of the mass market.
- Prices: The average selling price may remain high especially in cases where market demand is strong and only a few competitors have entered.
- Promotion: Promotions are broadened with more emphasis on mass promotions and sales promotions that encourage product trial. Also, personal selling and sales promotions to distributors continue as marketers attempt to make inroads into distributors that target the mass market.
- Distribution: Marketers look for new distribution channels that enable the product to begin to reach the mass market. For instance, consumer products may look to gain distribution in large discount retailers.
- Profits: The early market entrants may begin to experience profits as early development costs have been covered and overall demand is gaining steam.
Brand Strategy:
In the early part of the Growth stage marketers are looking to expand the market beyond the Early Adopters and into the mass market using Market Expansion strategies such as: 1) Grow Sales with Existing Products primarily by getting new market segments to buy, and 2) Grow Sales with New Products by introducing new models containing different sets of features. The latter strategy is used not only to appeal to new customers but also to encourage repeat purchasing by existing customers.
Additionally, greater emphasis is placed on using promotion to continue building awareness and driving interest in the product form. This is due to: 1) the need to reach a broader market, and 2) to maintain an effective "share of voice" (i.e., percentage of all promotions in the market) so the marketer’s message is not lost among competitors’ increased promotional spending.
Planning: Middle Growth Stage
Characteristics:
- Competition: More competitors are attracted to the market as they see the market potential to provide high profits. Competitors selling products customers previously purchased to satisfy needs now addressed by the new product form may be extremely aggressive (may be entering the Maturity stage of their industrys’ PLC) resulting in major price reductions. This may delay the adoption of the new product form by some Early Majority.
- Target Market: The Early Majority sector of the mass market begins to purchase in higher volume and depending on the product, existing customers (i.e., Early Adopters) may be purchasing again. The Late Majority are beginning to become customers.
- Product: Companies increase the number of product offerings in order to differentiate themselves from competitors. In most cases new product offerings do improve on the performance or benefits offered by earlier products. However, the target market may begin to feel burdened by too many choices.
- Prices: As more competitors enter with more product options prices may begin to fall, though the effect may not be felt as strongly if demand remains strong. Pricing may be somewhat more competitive if large companies with strong financial backing are now entering, or in smaller segments where multiple companies are trying to establish a niche.
- Promotion: Emphasis has shifted to heavy advertising and promotions that promote individual brands and not just awareness and education of the product form. Heavy selling and sales promotion continues with distributors.
- Distribution: Distribution reaches saturated levels as all possible channels are now handling the product.
- Profits: Marketers who were early entrants to the market may begin to see very high profits as demand is increasing while the pricing levels remain fairly strong. Depending on the product, unit cost of production may be dropping as manufacturing levels increase.
Brand Strategy:
In the middle part of Growth stage the objective is to continue a Market Expansion strategy, including seeking out new market segments that have not been targeted. This stage is also a time to focus on product positioning. The idea is to use marketing decisions to affect customer’s perceptions of a brand by trying to either: 1) separate a brand from other products (i.e., differentiate), or 2) bring a brand closer to competitor’s offerings (i.e., equivalency). For the differentiation approach marketers use promotional methods that show why their brand is different while the equivalency approach may suggest that a brand is equal to other brands but offers an advantage, generally on price.
Late-to-market competitors may use a penetration pricing approach to establish a position in the market. Penetration pricing intentionally sets a price that is below long-term pricing in order to capture large share of market. The firm will raise price once the product is established.
Some marketers also determine that it is time to focus on specific segments of the market via a Niche strategy approach.
Planning: Late Growth Stage
Characteristics:
- Competition: As the market begins to see slower growth, companies find themselves in a highly competitive market with fierce battles occurring on some fronts, such as within certain segments, where demand is falling faster than in other segments.
- Target Market: The overall market is still growing in terms of sales volume, especially as the product spreads to the Late Majority. But there is some evidence that while sales are increasing it is occurring at a decreasing rate.
- Product: With so many competitors offering numerous product options customers feel overwhelmed and confused by the choices available. In cases where customers do not fully understand the product (e.g., technology product) they may feel more comfortable purchasing from top brands or products sold at major distributors.
- Prices: The average price is falling rapidly as market growth begins to slow and competitors struggle to maintain their market share. Price wars may break out.
- Promotion: Heavy spending on advertising and especially on sales promotions designed to offer incentives to customers to purchase and to re-purchase.
- Distribution: With demand beginning to slow, some distributors cut back on the number of products they stock and persuade leading product marketers to offer more incentives to remain with the distributor.
- Profits: Marketers begin to see a leveling off of profits as overall revenue flattens due to slowing demand and falling prices. However, marketing costs still remain high.
Brand Strategy:
Many marketers find this to be the most difficult part of the PLC. The late growth stage is a turbulent time with firms fighting just to survive. The turbulence is brought on by the slowing of growth. This is not to say that overall sales are declining but that the percentage of growth from one period to the next is declining. For instance, sales over a three-year period may show an overall increase but it is occurring at a decreasing rate compared to the previous years (e.g., 20%,15%, 10%).
The key objective for a marketer is to remain competitive by maintaining a power position (e.g., leading brand name) or by achieving an insulated position within a niche. Brands may use promotional tactics that keep existing customers happy (e.g., coupons, improved customer service) and entice new customers to try the product (e.g., rebates, extended payment, try-before-you-buy). Distribution partners are encouraged to remain loyal through such actions as special pricing, promotional assistance and special packaging.
Maturity Stage of the PLC
At some point in time sales of the product form slows. Instead of double-digit growth from one period to the next, the industry limps along with low single digit sales increases or worse. There are two key reasons why this occurs. First, the market has become saturated with a large majority of potential customers having already purchased the product. In the case of products that have a long buy-cycle (i.e., time between repeat purchases) the infrequency of repurchase results in slow sales for some time. Second, customers have moved on to purchase other products that are seen as replacements for this product form. In this situation, the growth of the product form may have been interrupted with the introduction of a new product form (e.g., cassette tape players replaced by CD players).
Under these conditions marketers can no longer count on the growth in the overall market as the trigger for increased company sales. This can be best explained with an example.
“Period 1 – Market Size 100,000 units Market Share 10% Total Company Sales 10,000 units
Period 2 – Market Size 200,000 units Market Share 10% Total Company Sales 20,000 units
Period 3 – Market Size 200,000 units Market Share 10% Total Company Sales 20,000 units”
As shown, during the growth stage (Period 1 to Period 2) a marketer may see product sales increase without the need for an increase in market share (i.e., maintain status quo). In fact, if their market share dropped to 6% in Period 2 they would still realize an overall sales increase (200,000 x 6% = 120,000 units). But once sales have leveled off (Period 3) competitors now find that the only way to increase sales is to either: 1) increase market share, or 2) increase the market size. This, of course, will make things very competitive.
The slowing of market growth is a signal that the product form may have reached the Maturity stage of the PLC. In our discussion the Maturity stage is divided into two distinct sub-stages:
- Early Maturity Stage
- Late Maturity Stage
Planning: Early Maturity Stage
Characteristics:
- Competition: By far the fiercest competition takes place as marketers move to grab customers from often weakened competitors. At this stage many competitors fail or merge with others.
- Target Market: Little or no growth is occurring as the market is saturated or the target market looks to other product to satisfy their needs. Laggards may start buying but only if they can no longer purchase products they previously purchased to satisfy their needs.
- Product: Many products still exist though some level of product standardization has occurred. Any new models introduced do not lead to major improvements in product performance or benefits offered, but instead offer minor incremental improvements.
- Prices: The average price continues to fall possibly below cost as competitors attempt to remain in market. Price wars occur in many segments.
- Promotion: Heavy competitive advertising and extensive promotions take place with the objective of getting existing customers to switch (for their repeat purchases) and encouraging distributors not to drop from their inventory.
- Distribution: Distributors continue to reduce their inventory and promotional focus for the product form and become very selective on the products they will carry.
- Profits: Industry profits fall rapidly and many firms lose money as they increase spending in hopes of remaining in the market.
Brand Strategy:
In the early part of the maturity stage, the key objective is to enact strategies that enable a product to survive in the face of strong competition driven by lessening of demand. In fact, marketers may be happy following a Status Quo strategy that is intended to just maintain their market position. Unfortunately, this may prove difficult as this stage, often called the “shakeout stage”, leads to many products failing or being absorbed by competitors (i.e., companies merge, products are sold).
In order to survive, marketers may need to resort to tactics designed to "steal customers" from others which often involves significant price promotions (e.g., heavy discounting) or strong promotions intended to improve image or solidify a niche. Marketers who have avoided competing on price may be in a better position to weather the storm if they have convinced the market they offer special features that few others offer. This can be the case if they have successfully established a strong position in a niche market.
Extending the PLC
A more likely scenario for companies at in the Early Maturity stage is to investigate new ways to grow the market in an effort to extend the growth stage of the PLC. The use of resurgence tactics include such measures as:
- Changing how customers use the product such as: encourage more frequent use or more consumption per usage (e.g., consume 2 units instead of 1 unit); suggest new benefits that can be obtained from using the product (e.g., has added health benefits not previously promoted); or suggest new uses for the product.
- Finding new markets not previously targeted.
- Developing new product options (i.e., product line extensions) that offer more or better features (e.g., easier to use, safer, more attractive) that may get existing customers to re-purchase more quickly then they would normally.
- Heightening interest by changing image through heavy promotion and package redesign.
- Competing with lower priced brands by offering own low price product through private label branding arrangement with distribution partners.
Planning: Late Maturity Stage
Characteristics:
- Competition: The competitive landscape has stabilized with only the survivors remaining often made up of a few market giants and several small niche firms.
- Target Market: The market has become saturated for first time buyers and focus is now on getting existing customers to remain loyal.
- Product: The introduction of new models is reduced to just a few product performance enhancements, though there may be more stylistic improvements.
- Prices: Overall prices stabilize and may rise due to limited competition.
- Promotion: Large competitors begin to cut back on expensive promotions designed to attract new customers and focus on reminder promotions to loyal customers.
- Distribution: Has stabilized with few new distributors agreeing to handle product. For products sold at retail stores there is a noticeable reduction in shelf space devoted to the product.
- Profits: Companies see profits recover as demand stabilizes, pricing rises and overall marketing costs drop.
Brand Strategy:
If companies have failed to extend the PLC in the early part of the maturity stage, it is very likely the product form may never again experience growth. Instead the companies will continue to market the product, albeit, with little effort other than making it available to customers who have been purchasing it for some time.
By the late part of the maturity stage the companies that are still selling may no longer consider the product an important product for the future of the company, but this does not mean the product is not important. In fact, it may be very important for the profit it generates (a.k.a. cash cow) which is used to fund new products. Consequently, some attention is still paid to the product but only to insure that it is still available to those who want to purchase.
Decline Stage of the PLC
A product form has reached this stage when it becomes clear the market is no longer able to sustain itself. Like the Maturity stage, the Decline stage may last a long time especially for products that have been adopted by a large percentage of the market who are not inclined to change how they satisfy their needs (i.e., Laggards). Since the end of the product form is seen as inevitable, there are no sub-stages here.
Planning: Decline Stage
Characteristics:
- Competition: As time goes on firms drop out until no one is producing the product.
- Target Market: Mostly consists of Laggards who have been loyal to this type of product for a long time and have not moved on to newer products.
- Product: No new improvements are introduced and some models are discontinued.
- Prices: May be rising as competitors drop out and companies still in the market have little incentive to engage in price competition. Also, there may be a large loyal market they may not be sensitive to price increases. However, some companies looking to get out of market, but have existing inventory, may drastically markdown product to encourage rapid sales.
- Promotion: Companies limit promotions to occasional reminders to loyal customers though overall little is spent.
- Distribution: With declining demand distributors are removing products. The marketer may even make the decision to remove the product from unprofitable distributors. Sales may shift to online distribution or via non-traditional channels.
- Profits: For companies remaining, profits may be stable and possibly big if this stage takes a long time to play out.
Brand Strategy:
Marketers are faced with Market Exit strategies when they reach the Decline stage. There are two ways marketers can address this. First, companies may consider a "milking" strategy that involves getting the most out of the product in terms of sales without spending any additional funds to support the product. This strategy works best if a sizable market remains that is loyal to the product and not very price sensitive. A customer base with these characteristics allows a marketer to ride through the decline stage for some time while earning sizeable profits. Second, companies may look to sell off or "divest" the product. In some situations this can be done by first investing in the product in order to make the product more attractive to potential buyers.
However, discontinuing a product does not mean a company no longer earns revenue from the product form. Many discontinued products, especially those used in business and industrial settings, will continue to earn money through support services such as selling supplies and service/repair contracts.
Criticisms of the PLC: Part 1
As we have seen, the PLC has the ability to offer marketers guidance on strategies and tactics as they manage products through changing market conditions. Unfortunately, the PLC does not offer a perfect model of markets as it contains drawbacks that prevent it from being applicable to all products. Among the problems cited are:
- Shape of Curve – Some product forms do not follow the traditional PLC curve. For instance, clothing may go through regular up and down cycles as styles are in fashion then out then in again. Fad products, such as certain toys, may be popular for a period of time only to see sales drop dramatically until a future generation renews interest in the toy.
- Length of Stages – The PLC offers little help in determining how long each stage will last. For example, some products can exist in the Maturity stage for decades while others may be there for only a few months. Consequently, it may be difficult to determine when adjustments to the Marketing Plan are needed to meet the needs of different PLC stages.
- Competitor Reaction not Predictable – As we saw, the PLC suggests that competitor response occurs in a somewhat consistent pattern. For example, the PLC says competitors will not engage in strong brand-to-brand competition until a product form has gained a foothold on the market. The logic is that until the market is established it is in the best interest of all competitors to focus on building interest in the product form itself and not on claiming one brand is better than another. However, competitors do not always conform to theoretical models. Some will always compete on brand first and leave it to others to build market interest for the product form. Arguments can also be made that competitors will respond differently than what the PLC suggests on such issues as pricing, number of product options, spending on declining products, to name a few.
Criticisms of the PLC: Part 2
- Impact of External Forces – The PLC assumes customers’ decisions are primarily impacted by the marketing activities of the companies selling in the market. In fact, as we discussed in the Managing External Forces tutorial, there are many other factors that can affect a market which are not controlled by marketers. Such factors (e.g., social changes, technological innovation) can lead to changes in market demand at rates that are much more rapid than would occur if only marketing decisions were being changed (i.e., if everything was held constant except for company’s marketing decisions).
- Use for Forecasting – The impact of external forces makes it difficult to use the PLC as a forecasting tool. For instance, market factors not directly associated with the marketing activities of market competitors, such as economic conditions, may have a greater impact on reducing demand than customers’ interest in the product. Consequently, what may be forecasted as a decline in the market signaling a move to the Maturity stage may in fact be the result of declining economic conditions and not a decline in customers’ interest in the product. In fact, it is likely demand for the product will recover to growth levels once economic conditions improve. If a marketer follows the strict guidance of the PLC they would conclude that strategies should shift to those of the Maturity stage. Doing so may be an over-reaction that could hurt market position and profitability.
- Stages Not Seamlessly Connected – Some high-tech marketers question whether one stage of the PLC naturally will follow another stage. In particular, technology consultant Geoffrey Moore suggests that for high-tech products targeted to business customers a noticeable space or “chasm” occurs between the Introduction and Growth stages that can only be overcome by significantly altering marketing strategy beyond what is suggested by the PLC.
While not perfect, the PLC is a marketing tool that should be well understood by marketers since its underlying message, that markets are dynamic, supports the need for frequent marketing planning. Also, for many markets the principles presented by the PLC will in fact prove to be very much representative of the conditions they will face in the market.
Finally, the PLC is just one of many models that can assist marketers as they are engaged in the planning process. Most are beyond the scope of this tutorial. For those interested in learning more about these models you are encouraged to consult one or more of the many excellent Marketing Strategy textbooks or trade books.
