hi there in this business topic video we're going to take a look at a popular and widely used theoretical model that's particularly useful for marketing and business strategy it's known as the product lifecycle the model is a theoretical one in the sense that it tries to predict or describe the stages of sales growth that a product will go through from the moment it's developed and launched onto the market all the way through to the end of its life as a product and the stages in between and it's a particularly useful model because it comes in handy for doing things like forecasting the likely path of sales of the product over its life for assessing where a product or brand is in terms of its stage of its life cycle and how it fits in with a product portfolio it can also be useful in terms of determining how to target and how to position a product in a market and the financial people find it handy when it comes to determining whether to focus investment on products particularly those that are perhaps towards the end of their life cycle let's take a look at the at the model try to explain the different stages and also provide some examples of what we mean most descriptions of the product life cycle identify five stages development introduction growth phase a maturity phase and followed by the end the decline phase the important point to remember however is this is not just about individual products the product life cycle could also be applied to a broad category of products it can be applied to a brand or a particular model it's a conceptual theoretical model we track or try to predict the sales trend of a product in its life cycle by looking at two dimensions the rate of sales and time obviously the first phase development there should be no sales because the products not yet launched onto the market once it is launched it enters the introduction phase where normally sales grow slowly as it's adopted slowly and as revenues and sales accelerated enters what's known as the growth phase where we see a steep increase in in the sales performance the next phase is the maturity phase where the sales growth or rate of sales growth slows but sales themselves may still be growing but not as fast as during the growth phase and finally there comes a point where actual sales start to decline they tail off sometimes quite sharply now the curve the classic product life cycle curve we illustrated in the slide before and there are some examples out of out there of pretty well known products whose sales do appear to follow the classic product life cycle shape and i've put one on the screen there which is the annual sales of apple's classic ipod and you can see quite clearly there's a very strong growth phase and then around 2006 7 8 maturity phase and then since then of course as apple has introduced a whole range of other products that effectively do the same thing that the apple ipod did the apple ipod very quickly entered into its decline phase let's just briefly look at each of the uh the stages of the product life cycle just so you're aware of what's involved in each of them the the development stage of course is what it says on the tin it's the process of new product development and depending on what product and what markets the business is operating in this can be quite a complex or quite a simple process it may take a long time or it may be possible to get a product to market very quickly it all depends on the nature of the product and in particular the the need for research and development and market research before the product is launched once you get into the introduction stage this is where you find out whether your concept is being accepted by the market a key thing to remember with the introduction stage is that not all customers will be aware of the product in fact probably most of your target customers won't be so there's a need to spend quite heavily on promotion to make your target consumers aware of the new product launch if you're manufacturing that product it's likely that because of the low demand you're operating at quite a low level of capacity utilization and therefore unit costs are relatively high and as a consequence of that plus also the investment in marketing required to make the product launch and introduction stage successful usually new products uh have a negative cash flow associated with them so sales may be growing but actually they're not generating cash so the key with the strategy marketing strategy at the introduction stage is to achieve your introduction objectives and typically this is to to find customers who are willing to adopt the product often they're known as early adopters particularly if it's a product that's not been seen before if it offers a new way of doing things you may initially find it quite hard to find distribution for the product if you're relying on intermediaries such as retailers and distributors and you also need to make a choice around pricing strategy so do you adopt what's known as a penetration pricing strategy which is to offer a particularly low price to try and encourage people to to buy the product or conversely do you offer quite a high price a premium price and try to skim off the available profits even though the the volume of output that's demanded is quite low once you get to the growth stage you start to identify a product that is a winner and the key here is to maximize the the the strength of the growth phase and establish the products as a successful product in the marketplace so the growth stage is always characterized by much faster revenue growth more consumers finding the product perhaps through word of mouth recommendation and a key response of the market is often that competitors in the market spot you've got a winner and they try to replicate it or copy your product so it's often the case in the growth phase that you see lots of new competitor products trying to enjoy the same success that your product has had however as you're making more unless you're selling more you should see unit costs start to fall particularly if you're achieving economies of scale and as a result the product ought to be profitable and should generate a positive cash flow depending of course on the need for marketing spend to sustain the growth stage so slightly different strategies required in the growth stage it's important to try and maximize the distribution of the product to reach as as wide a target audience as possible to try and build market share this strategy called market penetration which you may have heard of when you've looked at the answer matrix and of course all the time you're looking to continually improve the product perhaps add some more features some different styles some new options a constant process of product development to try and sustain the fast growth that you're enjoying now when we get to the maturity stage things get a little bit more difficult particularly for businesses that whose products are not the market leaders the maturity stage is characterized as we know by slowing sales growth and typically there are now quite a few competitors and competitive products all fighting for a share of a market that's starting to slow for the biggest businesses the best products this should be a good time for profit you should have low unit costs because you're operating efficiently weaker competitors will start to leave the market or exit the market because of the lack of sales growth and also because prices will start to fall as competition becomes more intense but the maturity stage for a successful product can be a very positive stage in terms of cash flow if you think about it you've already made all your investment you've invested in product design development and launch you've spent heavily on marketing to build a customer base you've almost certainly already invested in the capacity to make the thing so there's not that much more than you need to spend on this product you just enjoy the profitable sales that's in that that it's achieving so the key thing for a mature product in particular a market leading product is to try to maximize the return so you're constantly looking at the product to seeing whether it can be slightly repositioned or differentiated you're constantly trying to maximize the distribution and also you can start to implement what is known as extension strategies can you find some new users who are late to the product but who could be quite profitable can you find some new uses of the product to extend that maturity phase even longer can you slightly reposition the product in the marketplace to extend the maturity phase i've put a picture of of what is perhaps the most uh the classic example of extension strategies for a mature product which is what happened to the to the humble bottle of lucazide which several decades ago was well known as a as a high sugar high energy boost drink and uh very cleverly the makers of luke assad repositioned the product as a high performance sports drink and the rest as they say is history a great example of an extension strategy the final stage bad news for products that find themselves in the decline stage their sales are falling almost certainly the market is falling as well we'll start to see a significant reduction in profits and cash flow because the revenues aren't sufficient to cover the costs and what happens is if this is a decline phase for a market as a whole we see competitors leaving the market but still leaving capacity and their followers are a pretty intense battle to squeeze out the last remaining pounds of profit before the market and the product as a whole becomes unsustainable now of course there are lots of reasons why products enter the decline stage chiefly these days technological change is the key reason the rapid advances in technological change are said to be shortening the product life cycles of so many products and services but it's not just that of course it can be just simple changes in society tastes and preferences and of course it can be increased competition perhaps providing a substitute product an alternative product for yours the decline phase can come across a a business and a product very quickly particularly if a business fails to innovate and keep on top of what competitors are doing so the the right strategy for the decline phase is is simple just try to make the most of what's a difficult time cut back on the marketing cut back on all spending if you can continue to to squeeze a profit out of the product do so if you can find a way of continuing to support loyal customers do so but if you can't bite the bullet close the product move on so that's briefly explaining the five stages of the product life cycle and the key thing to remember is it's a theoretical concept it's not meant to predict precisely the sales of any one particular product and almost by definition the nature the shape the size of the product life cycle for any particular product in industry will vary um and also it's quite hard to know how long the product life cycle will last because as we can see there are lots of factors that influence when a product moves from from one stage to another it's also possible to identify a whole bunch of products like heinz baked beans where they're just there's no sign of a decline phase there's something about the product that means it's perhaps always permanently going to be in a maturity phase let's just briefly give you a couple more examples of the life cycle in action we'll just take the consumer electronic sector as a good starting point just to give you a flavor for what do we mean by the different stages of the life cycle development phase well you've seen it haven't we the go into any apple store now you can buy consumer drones they're on the shelves who knows what other consumer products using drone technology will arrive over the next few months and years but the key thing to remember is that drone technology is increasingly a consumer product and service but it was developed like so many things out of investment into research and developed by the military the launch phase a good example is the the increasing flow of new products that have been launched recently in what are known as the wearable technology sector so at each of the the big mobile conferences in barcelona we see dozens and dozens of new wearable gadgets all vying for the attention of the early adopters uh growth phase well you know tvs have been around a long time but ultra high definition displays televisions monitors is now a very fast growing segment of the display market and of course we're not just talking about tvs we're talking about interactive displays of all kinds if you're looking for an example of maturity look no further than the led tv set the staple standard tv these days a highly mature product globally still growing but very slowly a classic example of a mature phase and finally the humble dvd ten years ago we'd have all said that the dvd was in the growth phase it is now as this evidence shows on the chart firmly in the decline phase as of course we're switching from buying media entertainment media in hard copy format and increasingly deciding to to stream it using our digital mobile devices there we go that's been an introduction to the product life cycle it's an important model it can be used in lots of different ways to support marketing and business strategy and i hope you found it useful