Reading 2 a Second Extract from Marketing Essentials
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Reading2 Asecond extractfromMarketing Essentials Dibb &Simkin2009 Reading 2Product LifeCycles Reading 2Product Life Cycles Productlife cycle Just as biological cycles progress through growthand decline, so toodo Thefour majorstages productlifecycles. Anew productisintroduced into themarketplace; it through whichproducts grows; it matures; andwhenitloses appeal andsales decline, it is move: terminated.AsexplainedinChapter 9, differentmarketing Introduction, growth, maturity anddecline Figure8.4:concepts of widthofproductmix anddepth of productline appliedtoselected Procter&Gamble products Source: informationprovidedand reprintedbypermission of theProcter & Gamble company, Public Affairs Division, Proctor&Gamble Plaza, Cincinnati, OH 45202-3315 Laundry Toothpastes Barsoaps Deodorants Shampoos Tissue/ detergents Towel Productline IvorySnow Gleem1952 Ivory1879 Old Spice Head &Shoulders Charmin depth 1930 Crest 1955 Camay1926 1948 1961 1928 Dreft 1933 Zest 1952 Secret 1956 PantenePro 1965 Puffs Tide 1946 Safeguard Sure 1972 VidalSasson 1960 Cheer 1950 1963 1974 Bounty Bold 1965 Olay 1993 PertPlus1979 1965 Gain 1966 Ivory1983 Royale Era1972 1996 Productmix width Strategies areappropriateatdifferent stages in theproductlife cycle. Thus packaging, branding andlabellingtechniquescan be used to help create or modify products that have reached differentpointsintheir life. As Figure8.5 shows, aproductlife cyclehas four majorstages: introduction growth maturity decline. When aproductmovesthrough its cycle, thestrategiesrelatingto competition, promotion, place/distribution, pricingand market information must be evaluatedperiodically andpossiblychanged. Astutemarketing managers usethe life-cycleconcepttomakesurethatthe introduction, alteration andterminationofaproductare timedand executedproperly.By understanding thetypical life-cyclepattern,marketers arebetterableto maintain profitableproducts anddropunprofitableones. Introduction Introduction stage Aproduct's first appearanceinthe The introductionstage of thelifecycle begins at aproduct's first marketplace, before any appearance in themarketplace, whensales arezeroand profits arenegative. sales or profits have been Profits arebelow zerobecause anew productincursdevelopmentcosts, made. initialrevenuesare low, andatthe sametimeacompanymustgenerally 5 Reading 2Asecond extractfromMarketing Essentials incurthe significantexpenses incurred duringpromotion anddistribution. As timepasses, sales shouldmove upwards fromzeroand profits shouldbuild up fromthe negativeposition(see Figure8.5). Because of cost,veryfew productintroductions represent majorinventions. Developing andintroducinganewproductcan mean an outlayofmany millions of pounds.The failure rate fornew products is quitehigh, ranging from60to90per centdepending on theindustry andonhow product failure is defined. For example, in thefood anddrinks industry, 80 percent of allnew products fail. Typically,however, productintroductions involve a newdeodorant, anew type of vacuum cleaner or anew leisureconcept rather than amajor productinnovation. In general, themoremarketing- oriented thecompany,the more likelyitwillbetolaunchinnovative products that arenew to themarket. Newproduct ideas aremorelikelytobesuccessful when senior management is involved in product developmentand launch. In addition, research shows that aclear,stablevision, flexibility andimprovisation, informationexchange andcollaborationare also keyingredientsinnew productsuccess. Figure8.5: Thefour stages of the productlifecycle Growth Growth stage During the growth stage,sales rise rapidly, andprofits reach apeak and Thestage at whicha then starttodecline(see Figure8.5). Thegrowthstage is critical to a product'ssales rise product's survival because competitive reactions to itssuccessduringthis rapidlyand profits reach periodwill affect theproduct's life expectancy.For example, Mars apeak, before levelling offintomaturity successfullylaunchedIce Cream Mars,the firstice-cream versionofan establishedconfectionery product. Todaythe productcompeteswith more than adozen otherbrands.Someofthe competingbrands failed quickly and others followed. Profits declinelateinthe growth stageasmorecompetitors enterthe market,drivingprices down andcreatingthe need forheavy promotionalexpenses.Atthispoint atypical marketingstrategy encourages strong brandloyalty,perhaps usingsales promotion, andcompeteswith aggressive emulatorsofthe product. Duringthe growthstage,acompany 6 Reading 2Product LifeCycles triestostrengthenits market shareand developacompetitive position by emphasising theproduct's benefits. Aggressive promotionalpricing, including pricecuts, is typical duringthe growthstage.The Internet industryisnow well into its growthstage,and many competitors have enteredthe market.Companies likeAOL mustbattle hard to maintain theirexistingpositions in this competitivearena. Maturity Maturity stage During the maturity stage,the sales curvepeaks andstarts to decline, and Thestage during whicha profits continue to decline(seeFigure8.5). Thisstage is characterised by product'ssales curve severe competition, with many brands in themarket. Competitors emphasise peaks and starts to improvementsand differences in theirversions of theproduct. Inevitably, decline, andprofits continue to decline duringthe maturity stage, some weaker competitors aresqueezed out or switchtheir attentiontoother products. For example, somebrands of DVD player areperishing now that theproductisreachingthe maturity stage. During thematurity stage, theproducerswho remain in themarketmust make fresh promotionaland distributionefforts.These efforts must focuson dealersasmuchasonconsumerstoensurethatbrand visibility is maintained at thepoint of sale. Advertisingand dealer-oriented promotions aretypical duringthisstage of theproductlife cycle. The promotersmustalsotakeinto account thefact that,asthe productreaches maturity,buyers'knowledgeof it attainsahigh level. Consumers of theproduct arenolongerinexperienced generalists, but rather experienced specialists. Decline Declinestage During the declinestage,sales fall rapidly(see Figure8.5). Newtechnology Thelast stage of a or anew social trendmay cause productsales to take asharp downturn. For product'slife cycle, example, iPods have reduced CD sales andgreen concerns have damagedthe during whichsales fall sales volumes of certain models of vehicles. When this happens,the rapidly marketer must consider pruning items from theproductlinetoeliminate thosenot earning aprofit. Sony surprisedthe market by announcingitwould be pulling out of selling PDAs. The decision camebecause Sony believed that technology changesare signallingamove away fromhandheld organisers towardsmultifunctionalmobile phones. At this time,too, the marketer maycut promotionefforts,eliminatemarginaldistributorsand, finally,plantophase out theproduct. Because most businesses have aproductmix consistingofmultiple products, acompany'sdestinyisrarelytiedtoone product. Acomposite of life-cycle patternsisformedwhenvarious products in themix areatdifferent stages in thecycle.Asone productisdeclining, otherproducts areinthe introduction, growthormaturity stage. Marketersmustdeal with thedualproblemsof prolonging thelife of existingproducts andintroducingnew products to meet sales goals.Moredetails of this kind of portfoliomanagementactivity aregiven in Chapter 9, which also explores thedevelopmentofnew 7 Reading 2Asecond extractfromMarketing Essentials products andconsidershow they can be managedintheir variouslife-cycle stages. 8 Why Some Products Fail andOthersSucceed WhySomeProductsFailand Others Succeed Thousandofnew products areintroduced each year andmanyofthemfail. Someestimates putthe productfailure rate as high as 60 to 90 percent. Failure andsuccess ratesvaryindifferent industriesand fromcompany to company. Figures suggest that consumer productsare more likelytofailthan thosedirected at business markets. Beingone of the firstbrands launchedin aproductcategoryisnoguarantee of success. One study found that in 50 productcategories, only half of thepioneerssurvived. Products fail formanyreasons. Oneofthe most common is thecompany's failure to matchproductofferings to customer needs. When products do not offervalue andlack thefeaturecustomers want,theyfailinthe marketplace. Ineffectiveorinconsistent branding hasalsobeen blamed forproduct failures. Otherreasonsoften givenfor newproductfailure include technical or design problems, poor timing, overestimationofmarketsize, ineffective promotionand inefficientdistribution. The problemsleadingtothe downfall of Coca-Cola'sUKlaunchofbottledwater Dasaniwerewidelydebated in thepress.Technical difficultiesled to bromidecontaminationatthe company'splant.Atatimewhenconsumerswerealreadyconcernedabout thepurityoftap water, thewithdrawalofthe productwas inevitable. For CadburyTrebor Bassett's 24-7 chewinggum,failure wasblamedon distribution problemsand lack of in-store support. Degrees of ProductFailure It is important to distinguish between degrees of productfailure.Absolute failure occurs whenacompanyloses moneyonanewproductbecause it is unabletorecoverdevelopment, productionand marketingcosts.Sucha productisusually deletedfromthe productmix.Relativeproductfailure occurs whenaproductreturns aprofitbut doesnot meet acompany'sprofit or market share objectives. If arelativeproductfailure is repositionedor improved, it maybecome asuccessful member of theproductline. Some products experience relativeproductfailure afteryearsofsuccess. Drinks business Diageo recently steppedintostemdecliningsales of Guinness stout.Partofthiseffortinvolvedreformulatingthe