Notes

Product life cycle
Research & Development (pre-launch)

Market research conducted to discover what products would appeal to potential customers.

Creating prototypes and test marketing activities.

Discussion with key stakeholders about pricing, packaging, promotion and distribution prior to launching the product.

There are no sales during this phase of the product life cycle, but expenditure will be high.

Investment costs will be very high (especially for R&D), profit will be negative, and cash flow will be negative.



Developing a prototype is part of the PLC

Introduction (launch)

A promotional mix is used to raise awareness of the product (a question mark in the Boston Matrix), e.g. advertising, point of sale promotion, direct mail and sales promotions.

A high price might be set in an attempt to recoup the costs of R&D, especially if there is very limited competition in market. Alternatively, for some products, a low price might be more suitable in order for the business to establish itself in an existing market and/or to gain market share.

There are limited distribution channels as the product is targeted at early adopters and most customers are not (fully) aware of the product. Hence, it is unlikely that the product is profitable at this stage.

Marketing expenditure will be high in order to raise the profile of the product and to generate sales growth.

Investment costs will be high (especially for marketing), profit will be negative, and cash flow will be negative but more favourable as the product gets noticed.



Growth

Sales revenue increases as marketing efforts make the product and brand known to the market. The rising star is likely to be earning profit for the business at this stage.

The larger customer base warrants a larger number of distribution channels.

The marketing mix focuses on product development (improvements to the product), brand preference (with the aim of getting potential customers to switch from competing brands) and customer loyalty.

Pricing strategy may need to change due to competition in the market and to facilitate continued growth.

Investment costs will be high (especially for marketing purposes), profit will materialise, and cash flow will be positive as product recognition and sales grow.

Maturity

Marketing is extensive and the product is well known in the market.

The marketing mix focuses on keeping the product as a cash cow for as long as possible in order to maximize profits. Profit will be high and generally stable.

Brand loyalty and brand value are vital aspects of product differentiation in order to prolong this stage of the life cycle.

There is also price competition as the product competes in a mature market with well-established suppliers.

Extension strategies may be required in order to lengthen the product’s life cycle. Examples include adding new features to the product or launching a limited edition to spark renewed interest.

Investment costs will be low as the product become well-established and mature, profit will be peak, and cash flow remain positive.

Decline

This is the final stage in a product’s life cycle, with products eventually becoming dogs (products with low market share in declining markets). Customers have lost interest in the product at this stage of its life cycle.

Prices need to be lowered in order to sell such products, especially those that are obsolete (outdated) and are soon to be replaced with newer models.

Businesses need to decide whether (and for how long) to continue marketing the product or to withdraw it from the market.

Profits drop at this stage, and financial losses might be incurred.

Divestment is likely to occur at some point during this stage as profits drop at this stage (financial losses might even be incurred). Cash flow is likely to become negative.