The product life cycle

Product ‘ Product’ refers to the functions and features of a good or service Should satisfy the needs of the customer May have a Unique Selling Proposition (USP) ‘Product’ also includes a range of factors such as packaging, quality, warranties, after-sales service and branding Products and brands may suggest certain images e.g. sporty, sophisticated, value

Product life cycle The product life cycle looks at the sales of a product over time

Stages of the product lifecycle Development – high costs but no sales Introduction/Launch – high expenditure on promotion and product development, low sales Growth – sales increase and product should break even Maturity – sales stabilise, less expenditure on promotion needed, revenue & profit should be high Saturation – sales begin to slow down as there may be a new or alternative product on the market Decline – sales decline, extension strategies can be adopted or the product withdrawn

Purpose of the product life cycle Understanding the life cycle of a product is important for many reasons, for example it: Helps to manage cash flow Helps identify when products should be replaced or renewed Helps a business to manage its product portfolio Identifies when extension strategies are required

Extension strategies Extension strategies should maintain or increase sales during the saturation stage. They include: Modifying the product Adding a feature Changing the pricing strategy used Promotion, for example, to a different market sector

Pricing strategies and tactics SkimmingLaunching with a high price when there is little competition, then reducing the price later. Often used with technology. PenetrationA low price is charged initially to penetrate the market and build brand loyalty. The price is then increased e.g. introductory offers on magazines. CompetitiveA similar price is charged to that of competitors’ products. Loss leaderProducts may be sold at a price lower than the cost to produce it. Often used by supermarkets to encourage people into the store where it is hoped they will buy other products.

Pricing strategies and tactics PsychologicalA price is set which customers perceive as lower than it is e.g. £39.99 instead of £40. DifferentialDifferent prices are charged for the same product e.g. bus fares for children are cheaper than adult prices. Cost plus pricing An additional ‘mark-up’ is added to the cost of producing a good or service. Strategic pricing Price is set to position an exclusive product or brand to make it more desirable for consumers, generate demand or demonstrate value

Promotion The aim of promotion is to: Raise awareness Encourage sales Create or change a brand image Maintain market share

Types of promotion Above-the-line promotion This uses advertising media over which a firm has no direct control e.g. television, radio and newspapers Below-the-line promotion This uses promotional media which the firm can control e.g. direct mail, sales promotions and sponsorship

Boston matrix To help identify the right product mix a business can use an analysis tool called the Boston matrix. The Boston matrix compares the market growth of a product with its share of the market.

Boston matrix The matrix refers to products as question marks, stars, cash cows and dogs. Question marks – new products Stars – products with high growth and high market share Cash cows – high market share but growth has stabilised (maturity stage of PLC) Dogs – low market share and low market growth

Boston matrix For business to survive, it needs a balanced product portfolio so that it can invest the revenue it generates from its cash cow products to develop new question marks so that they become stars.