Planning with the Product Life Cycle Tutorial

Planning With the Product Life Cycle TutorialAs we saw in the Managing External Forces and Marketing Planning and Strategy tutorials, 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.

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 she assumes the entire market has entered the Decline stage just because her 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.).

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 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.

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.