1.3.5 Product Life Cycle and Portfolio
Product Life Cycle and Portfolio
Key Definitions
Product Life Cycle: The path a product follows from the initial research and product development to stagnation and, occasionally, the use of extension strategies.
Portfolio: The collection of goods and services offered by a business.
Product Portfolio Analysis: An analysis of the market position of the business's existing products, used as a part of the marketing planning process.
Extension Strategies: Marketing activities that are used to prevent the sales of goods and services from declining.
Promotion: One of the '4 Ps' of the Marketing Mix that covers how a brand or product is marketed to inform customers about the brand or product and persuade customers to buy the product.
Distribution: The process of getting the good or service from the producer to the consumer, including the physical or online distribution avaliability and visibility.
New Product Development: The process of developing new ideas into products or services that are ready to launch and be sold on the commercial market.
Cash Cow: A product that has a high share of a low-growth market.
Problem Child: A product that has a small share of a fast-growing market.
Rising Star: A product that has a high share of a fast-growing market.
Dog: A product that has a low share of a low-growth market.
What is the Product Life Cycle?
A graph that shows the sales of a product over time. There are key stages to the product life cycle:
1. Product Development
Sales in this stage are typically low as the product is not particularly well known on the market. Retailers may be reluctant to stock these products as it means giving up valuable shelf space to a product that may or may not sell well.
2. Introduction to the Market
Sales in this stage start to increase as word spreads about the new product and more people try it to see what it is like. Retailers can still be reluctant to stock these products due to the level of uncertainty involved.
3. Product Growth
Sales increase at a more rapid pace in this phase as the product really "takes off", with new customers buying it and existing customers making repeat purchases of it. There will be a peak to sales, which is the maturity period.
4. Product Maturity
Sales of the product start to level out and growth may slow due to, for example, an increased number of competitors entering the market, or the market has now become saturated as everyone already has bought one, so purchases come down to replacement purchases only.
5. Product Decline
Sales of the product start to fall into decline at this point, due to, for example, consumer tastes changed and becoming more sophisticated. A decline can also be linked to the avaliability of better alternatives from competitors.
A diagram of the Product Life Cycle can be seen below,
What is the Value of the Product Life Cycle?
The product life cycle model can help the managers of a business to plan their marketing activities, aiding marketing managers as they adjust their marketing mix at different stages of the product life cycle. The adjustments are made in the following manner:
- During the introduction phase the promotion may focus on making customers aware that there is a new product around on the market.
- In the maturity phase the promotion may change and focus more on highlighting the product differentiation between one product and another offered by a competitor.
Managers know that the length of the different stages in the life cycle will vary according to the product, which therefore makes it difficult to predict how long each stage will last for each product, meaning that the marketing mix will need to be altered for each product at different times. Some products could just be a fad and have a short product lifespan, whereas others may have a longer product life cycle. It is also important to remember that there is a difference between the product life cycle and the brand life cycle, and these can also impact the value of the product life cycle.
Development
|
Introduction
|
Growth
|
Maturity
|
Decline
|
|
Sales
|
Zero
|
Low
|
Increasing
|
Growth is slowing
|
Falling
|
Cost per Unit
|
High investment in product development
but only a few prototypes and test products being produced
|
High; sales are relatively low but
launch costs are high and overheads are spread over very few units
|
Falling as overheads are spread over
more units
|
Falling as sales are still growing
|
Low as development costs have been
covered and promotional costs are being cut
|
Product
|
Prototypes
|
Likely to be basic
|
May be modified given initial customer
feedback; range may be increased
|
Depends – may focus on core products
and remove poor sellers; may extend brand to new items
|
Focus on most profitable items
|
Promotion
|
As development is nearly finished it
may be used to alert customers of the launch
|
Mainly to raise awareness
|
Building loyalty
|
May focus on highlighting the
differences with competitor’s products
|
Probably no spending here at all
|
Distribution
|
Early discussions with retailers will
help in finalizing the product packaging
|
May be limited as distributors wait to
see customer’s reactions
|
Increasing as more distributors willing
to stock and product is rolled out to more markets
|
May focus on key outlets and more
profitable channels
|
Lower budgets to keep costs down
|
Price
|
Not Needed
|
Depends on pricing approach, e.g. high
if skimming is adopted, low if penetration is adopted to gain market share
|
Depends on demand conditions and
strategy; e.g. with a skimming strategy the price may now be lowered to
target more segments
|
May have to drop to maintain
competitiveness
|
Likely to discount to maintain sales
|
Extension Strategies
The aim of an extension strategy is to prevent a decline in the product's sales in the medium-to-long term. If a product is highly successful and highly profitable, then it is natural that the business will want to prolong its sales for as long as possible. The two main variables for basing a new extension strategy are the product itself and the way that it is promoted.
The Product
Over time certain brands have had multiple attempts at rebranding and relaunching themselves with something new. This is done to incorporate new product technology and to therefore fight off challenges from new brands and challengers. Some successful examples of product-based extension strategies include the relaunching of McDonald's in 2007 with a new salad menu, and also Malteasers extending their brand by launching the new Teasers and Malteaser Bunnies chocolate bars.
The Promotion
A new, long-term and more substantial promotion method is what a business needs to have when using promotion as their extension strategy. The continued success of products such as Coca Cola and Kellogg's Cornflakes is down to their sophisticated marketing techniques over the years, such as the way that the Kellogg's logo changes regularly.
New Product Development
This often involves product research and development, market research, product engineering, and design, as well as expertise in packaging, advertising, pricing and branding. It represents all of the activities that are categorized as 'development' in the product life cycle. Some types of new product development are so excellent and cleverly done that the products have a very easy start in the product life cycle, and are quick to become successful. There are many influences on new product development, including:
- A clear understanding of the consumers within a certain market segment, with a particularly special focus on their future needs or wants.
- The creativity to be able to see how an everyday problem or issue can be solved with high levels of innovation.
- Enough resources (money and manpower) to be able to develop an idea effectively and market it persuasively.
When a new product succeeds the consequences can be massively transformational. The value and importance of new product development cannot be doubted at all. A successful product could make its own product life cycle, which can in turn give the entire business a boost in morale and profits.
The Product Portfolio
Product portfolio analysis allows a business to examine the existing position of their products. This allows them to consider their existing position and plan ahead. There are different methods of product analysis, but we will look at the Boston Matrix - this shows the market share of each of the business's products, and the rate of growth of the markets in which they operate. By using the Boston Matrix a business can see exactly where their products fall in terms of market share and market growth, and they can as a result decide what to do next with their products (if they should continue selling that product or just axe it from production) and where to direct their marketing efforts.
There are 4 categories on the Boston Matrix:
1. Rising Star
These have a high market share and are selling in a fast growing market. They are attractive products and are doing well in a successful market, but they may also need protection from competitor's products.
2. Cash Cow
These have a high market share but are selling in a slow-growing market. They are mature products that are generating high profits for the company as the sales of cash cows are relatively high, but the promotional cost per unit is quite low.
3. Problem Child (also known as 'Question Marks')
These have a low market share but are selling in a fast growing market. They have the potential to provide high profits in the future, but the success of these products are definitely not certain. They need a relatively high amount of investment to promote, distribute, and sustain them.
4. The Dog
These have a low market share in a slow-growing market, giving them very little appeal to a business. It is very likely that these products will be killed off by the business when sales fall under the break even point, unless the business feels that it can be revived.
The Purpose of Product Portfolio Analysis
This aims to examine the existing position of the business's products. Once this has been done, the managers can plan what to do next. This typically involves 4 key strategies:
1. Building
Investing in promotion and distribution to boost sales, often used to improve the sales of the Question Marks
2. Holding
Marketing spending to maintain sales, often used for Rising Stars.
3. Milking
Taking whatever profits you can without much more new investment, often used with Cash Cow products.
4. Divesting
Selling off the product, commonly used with Dogs and Question Marks.
The strategies chosen will depend on the firm's portfolio of products. If most of their products are cash cows, for example, the firm will need to develop new products in order to develop and sustain future growth. However, if the majority are Problem Child products, then it is a high-risk situation as the business will need to ensure that some of their products do actually become stars. If there are too many dogs, the business would need to invest in product development, or to just acquire new brands.
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