Product Life Cycle and Extension Strategies
Extension strategies
Definition: A technique used by a business to extend the life of a product. The objective is to maintain and hopefully increase sales and profit of the product.
Examples
Uses of PLC
- Helpful with planning and altering marketing strategies e.g. promotion, advertising and growth.
- Can help to identify an extension strategy if needed (esp during maturity/decline stages).
Definition
- Attracting market segments.
- Increasing usage among existing customers.
- Modifying the product (via packaging?).
- Changing the image.
- Targeting new markets.
- Encouraging repeat buys (loyalty schemes, BOGOF deals etc.)
The Product Life Cycle
Strategic use tips
Drawbacks of PLC
A diagram which shows the different stages of sales that a product passes through over a period of time, from introduction to withdrawal from the market.
Development
- A reflective concept / only predictions.
- Each product experiences a different life-cycle (depending on consumer tastes).
- A self-fulfilling model - management only knows how to gain growth so will be forced to spend more on marketing.
- Strategies are usually supported by the main aims of the business.
- These usually support marketing purposes through branding and promotion to help the growth market share.
- R&D is important to help the product launch.
- Focus on the Marketing mix (4 Ps).
- Negative cash flow as product is not on the market yet (no sales, only expenses)
- High expenditure on R&D (ideas are tested).
- No idea whether idea will be profitable yet.
Decline
Introduction
- Sales begin to fall due to changing consumer tastes and fast changing technology.
- Revenue also drops.
- A company may have to cut prices and spend more on promotion.
- Cash flow still positive but will also fall.
- The product is launched.
- Prices are likely to be high to cover costs.
- Good for fast moving consumer goods.
- High marketing costs (through promotion).
- Slow sales (= still negative)
- Sales are starting to increase.
- Not likely to make a profit.
Maturity
Growth
- Sales and revenue reach their peaks (Same with cash flow).
- The product will have a stable market share.
- Competitors are likely to have made substitutes, making the market more saturated.
- Start thinking about extension strategies.
- All downhill from here!
- Sales are rising rapidly.
- The product is more recognisable and possibly profitable.
- Revenue is now higher than expenditure.
- Positive cash flow (finally!)
- Prices are often lowered at this stage.