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Product Life Cycle1.docx

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MANA 298
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Product Life Cycle (PLC) Everyone would agree on the fact that success or failure of an organization depends mostly on its products. A product would not remain on the market forever, just like human beings; products also have a life span or life cycle. There is the birth of a new baby is like a new product is introduced on the market, then the baby grows to be a child so this would is the growth stage of a product, then the child becomes a man, this would be the maturity stage for the product, after that the product goes in the decline stage which would be that the man becomes old. Finally death which would be withdrawal for the product. Therefore it can be said that the product life cycle is the different stages in which a product passes from its introduction till its withdrawal on the market. The above explanation shows why the product life cycle is based upon the biological life cycle. So, a product consist mainly of 6 stages, which are mainly the development stage, the introduction stage, the growth stage, the maturity stage, the decline stage and the withdrawal stage. A product life cycle will state the following: 1. That products have a limited life 2. Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller 3. Profits rise and fall at different stages of product life cycle 4. Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life cycle stage. Profitability is determined by selling a product, therefore product life has a direct relationship with profit of the organization. In the following diagram shows us that at different stages, the profit of the organization would vary. We can also see the product life line is the same as the profit line but smaller. At the development and introduction stage we can see a loss, it would be in the growth stage the product would start generating profit. In the case of MHC, the PEL is the product and it is operating at the decline stage as it is mentioned that existing schemes have not evolved much since being introduced twenty years ago. No negotiations, based on specificities of customers, are allowed, compared to other financial institutions. This has driven away many young professionals that presented high 1 | P a g e possibility of cross selling. The quality of the service being unsatisfied to customers has resulted in MHC losing customers to its competitors. Therefore sales of PEL is declining the revenue curve is going downwards but is still on the market. The following diagram shows this: Time The PLC is an important component in marketing. Managers use it because it highlights the need for a firm to change its marketing policies at the different stages of a products life. A concept known as the Product life cycle management helps marketers in planning out their marketing strategies to get the best out of the product that it is selling. An organization might draw out a Product Lifecycle to identify the stage at which its product is at in the lifecycle, from there they can decide what to do to keep the product alive or to maintain high sales. In other words, the PLC can be used as a retrospective tool to assess when a firm should enter an existing market with a new product or withdraw a dead product from the market. Since an increase in profits is the major goal of most organization that introduces a product into a market, the product’s life cycle management is very important with its ability to quickly identify potential sales opportunities and revenue contributions. This is why the most successful organizations are the one that reacts and take actions for its product at different stage. So, an understanding of the product life cycle concept enable the MHC to determine its position in the market compared to competitors and the product’s success or failure. STAGES OF A PRODUCT LIFE CYCLE: At different stages a marketer would use different marketing strategies to ensure its product success. ST 1 STAGE: DEVELOPMENT STAGE The development stage is the most expensive stage in a life of a product. The costs of research, both technical and marketing have to be borne and the product is not yet contributing revenue to 2 | P a g e the business. It is where a marketer would make use of marketing research to analyze the market, this is may be important as it can give us an indication if our product (service) would be successful or not. The business would be making a loss at this stage. The main problem with MHC is that it has never set up a real marketing department, so MHC had not done any rndearch before launching PEL. 2 STAGE: INTRODUCTION STAGE This stage represents the launch of the new product form by one or more companies and there is a high risk of product failure. Introduction of the product 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 already been adjusted as the product has gone through the Development stage. At this stage, the product is introduced on the market and it is unknown. For this reason sales are very low. There may be already competitors with similar products or no competitor at all. Thus the main objective of the business is to do advertising mainly informative one to attract customers for its product. During the introductory stage the firm is likely to incur additional costs associated with the initial distribution of the product. These higher costs coupled with a low sales volume usually make the introduction stage a period of negative profits. In the first diagram we have seen this where there is loss at the introduction stage. The organization’s intention is to ensure that the new product would meet all the customer requirements, that it is able to attract sufficient customers for the new product, that the product is successful. Moreover a business may want an earlier payback of investment cost, they would want to increase return on investment. During the introduction stage, the primary goal is to establish a market and build primary demand for the product class. Hence, at this stage MHC Ltd would seek to build product awareness (i.e. awareness of PEL) and develop a market for the PEL. The following are some of the marketing mix implications of the introduction stage that MHC could have use: 1. Product: MHC would want to know is the service is facing competition on the market and how the service is different from the other business. 2. Price: This would depend on the number of competitors on the market, the business may use a penetration pricing strategy on order to gain market share quickly. However most of the time it would be price could be a skimming strategy, high price would be charge as there is no competitors and the business may want to recover development cost. In the case of MHC which is offering a service, thus price could be the amount deposited for the account. 3. Distribution: Distribution is selective and scattered as the business commences implementation of the distribution plan. In the case of MHC could select its different branches which are not close to each other. 4. Promotion is aimed at building brand awareness. Samples or trial incentives may be directed toward early adopters. The introductory promotion also is intended to convince potential resellers to carry the product. For MHC, could use promotion like higher interest for the 2000 first people, but moreover MHC should do informative advertising in Housing magazines. 3 STAGE: Growth Stage 3 | P a g e As the introduction stage of product life cycle ends, the product has spent considerably moderate time into the market where customers / consumers get familiar to the product and start buying the product (or consuming it). As the product is now into the market it becomes more strengthened, the business starts making higher profits and additional markets segments are targeted. Once the product has been proven a success and customers begin asking for it, sales will increase further; therefore the growth period is a phase of fast income growth. More trade channels are now willing to keep the product and one generally observes softening of prices for this reason the marketing team may expand the distribution at this point. At this time the company soon starts operation on economic levels. There are less product bottlenecks hence cost is low. Later in the growth stage competitors are attracted by this profit and thus the product faces more intense competition. This competition now offers greater choice to the customer in the form of different product type, packaging and price. To remain competitive over a period of time the firm initiates product improvement or modification in the product to remain customers or attract new one. The market base will keep on expanding as more customers want the product but profits taper off at the end of this phase and will stabilize afterwards. Hence, at this stage MHC Ltd faces an improvement in its sales as consumers’ demand increases. The market of MHC Ltd grows hence acquiring greater market share, facing moderate competition. MHC Ltd should adopt the following strategies: 1. Product: New product features and packaging options should be added in order to compete with other businesses with similar products or attract more customers and also improve the product quality. Concerning PEL, it is a service could introduce internet banking for the account. 2. Pricing: This would depend on the external factors like competition, in case the organization is facing competition, there may be a competitive price adopted. But most of the time demand is high, so price would be high however the business could choose to lower the price to be able to get more market share. For PEL, MHC may put a high amount to be deposited or a low one. 3. Distribution: At this stage, distribution becomes more rigorous, there channels should be added as demand increases and the customers accept the product. Trade discounts are minimal as resellers show a strong interest in the product. Here MHC could use other stated owned companies to let people open an account there. 4. Promotion: It should be carried forward for a broader audience, to expand market share. There should be also increased advertising to build brand preference. Moreover in case of competition there should be increased promotional costs in order to convince consumers that the organization’s product is better than that of the competitors. In the case of PEL, it is a service a in the growth stage, MHC could readjust the interest given to customers. th 4 STAGE: MATURITY This now brings the product to its maturity stage. T
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