Overview
This lecture explains the product life cycle stages, strategies to increase demand at each stage, and uses real-life examples like Coca-Cola and the iPhone.
The Product Life Cycle Stages
- Research and Development (R&D) is costly, time-consuming, and generates no sales, leading to negative cash flow.
- Introduction is when the product launches, requiring heavy marketing investment and typically still negative cash flow.
- Pricing strategies during introduction include penetration pricing (low to attract buyers) and price skimming (high to target early adopters).
- Growth stage is marked by rapidly increasing sales and profits, and the arrival of competitors.
- Maturity sees sales plateau, high competition, but usually positive cash flow due to lower costs.
- Strategies in maturity include expanding distribution, controlling production, and often lowering prices.
- Decline occurs when sales drop due to market saturation or changing consumer habits; supply exceeds demand and cash flow may turn negative.
- In decline, businesses may stop production, cut prices for clearance, and minimize marketing.
Product Extension Strategies
- Extension strategies can delay moving into decline by refreshing the product.
- Line extension: launching new variants under the same brand (e.g. Diet Coke, Coke Zero, Cherry Coke).
- Brand extension: using the brand to enter new markets (e.g. Coca-Cola branded chewing gum).
- Other strategies: new advertising, price reductions, adding features, exploring new markets, and changing packaging.
Case Studies: Coca-Cola and iPhone
- Coca-Cola extended the maturity stage through line and brand extensions.
- The iPhone launched in 2007, grew rapidly for 8 years, and then reached maturity with plateaued sales from 2016 onward.
- Apple's challenge is whether to maintain maturity or innovate to avoid decline, as happened with the iPod.
Advantages and Limitations of the Life Cycle Model
- The product life cycle helps forecast sales and guides strategic planning to avoid decline.
- It assists in managing a product portfolio and investment decisions, and improves accuracy with more data.
- Limitations include not all products following the typical life cycle, some skipping stages, and the model being only a theoretical prediction.
Key Terms & Definitions
- Product Life Cycle — Stages a product goes through from R&D to withdrawal from the market.
- Penetration Pricing — Setting a low price to enter the market and attract buyers.
- Price Skimming — Setting a high price initially to maximize profits from early adopters.
- Line Extension — Adding new variations of an existing product under the same brand.
- Brand Extension — Using an existing brand name to enter new markets or product categories.
Action Items / Next Steps
- Reflect on examples of product extension strategies you have experienced in everyday products.