Product Life Cycle And New Product Development

 

1.0 INTRODUCTION 

 Most products have a limited profitable life. This note will give you a complete picture of what happens from the time a new product is introduced till it declines, and will show you how the decline

can, to a certain extent, be postponed. Product development involves careful planning and implementation. Sometimes organizations revive declining products by modification or else they follow several steps ranging from identification of market opportunity to launching of new products to replace the declining products. The greater is the competitiveness of markets, the greater the need for product development. 

2.0 OBJECTIVES

At the end of this note, you should be able to explain the:

·         concept of product life cycle

·         stages in the product life cycle, and the different types of marketing mix required at each stage

·         need for product modifications

·         need for new product development and the process through which a product has to pass before it is finally launched into the market. 

3.0 MAIN CONTENT

3.1 The Product Life Cycle Concept

A company which introduces a new product naturally hopes that the product will contribute to the profits and provide consumer satisfaction for a long period of time. This however, does not always happen in practice. So, progressive organizations try to remain aware of what is happening throughout the life of the product in terms of the sales and the resultant profits.  

Fig. 1: Sales Trend – Introductory Stage The Introductory Stage

Let us start thinking from the very beginning about what happens when a new product is introduced in the market. Figure 1 gives three optimistic alternatives as to the likely sales trend. If the product is well-designed, the sales would not increase slowly but would shoot up after some time as in (a). Rarely would there be a case where they would shoot up as in (b). A poorly designed product may experience a slow take off as shown in (a). Thus, (b) represents a suitable sales trend for a new product. This stage is called the ‘introduction’ or ‘innovation’ stage in the life cycle of a product.

Since the product has just been introduced, it is natural to expect that it will take some time before the sales pick up. There are some prerequisites for that too. The product must be brought to the notice of the customer. It must be available at the distribution outlets and all this takes some time. Therefore, a likely picture of the sales trend in this stage would be (b) as given in figure 1. 

The Growth Stage In case the product launched is successful, the sales must start picking up or rise more rapidly. The next stage is then reached which is known as the ‘growth stage’. Here, the sales would climb up fast and profit picture will also improve considerably. This is because the cost of distribution and promotion is now spread over a larger volume of sales. As the volume of production is increased, the manufacturing cost per note tends to decline. Thus, from the point of view of product strategy, this is a very critical stage. 

The Maturity Stage It is too optimistic to think that sales will keep shooting up. At this stage, it is more likely that the competitors become more active. In case your product is a novel one, by now competitors will come out with a similar product in the market to compete with yours. Therefore, the sales are likely to be pushed downwards by the competitors while your promotional efforts would have to be increased to try and sustain the sales. Thus, the sales reach a plateau. This is called the ‘maturity stage’ or ‘saturation’. At this point, it is difficult to push sales up. With regard to the ‘profit’ picture, the profits are likely to stabilise or start declining as more promotional effort has to be made now in order to meet competition. Unless, of course, you have the largest market share with your product and it needs no extra push in the market. 

The Decline or Obsolescence Stage Thereafter, the sales are likely to decline and the product could reach the ‘obsolescence’ stage. Steps should be taken to prevent this obsolescence and avoid the decline. This decline that generally follows would be due to several reasons such as consumer changes and taste, improvement in technology and introduction of better substitutes. This is the stage where the profits drop rapidly and ultimately, the last stage emerges. Retaining such a profit after this stage may be risky, and certainly not profitable to the organization. Figure 2 shows the ‘product life cycle’ and the different stages. 

   

3.2 Marketing Mix at Different Stages Increase Reduce Improve Any other, ls. Specify

 (1) Introduction Stage   

(2) Growth Stage     

At the introductory stage, we have to increase and thus spend a lot on physical distribution and promotion. This is because we have to create an awareness and acceptance of our product. We must also increase its availability. Very often in this country, it is noticed that a product is advertised but is not available at the distribution outlets. This is a waste of promotional expenses. We must make optimum use of the available resources of the organization. Thus, distribution should be arranged before the product is launched.

 In any case, in these two areas, substantial amounts would have to be spent. We have to also counter the reluctance of customers to change their established patterns and make them purchase our product, particularly if it is of a novel nature. As against this, if it is a novel one, people may even buy it out of sheer ‘curiosity’.

Next is the growth stage, when the sales shoot up and we are satisfied with the profit generated by the product; competitors will now enter the market and perhaps offer new product features. Therefore, we may have to think of improving our product so that we do not reach the ultimate ‘decline’ stage too quickly. The promotional expenditure is maintained at the same level or is raised slightly in order to meet competition.

We now come to the next stage called the maturity stage. This stage generally lasts longer than the other stages and poses problems for the management in maintaining the sales level. Actually, there is a slow down in the growth rate of sales in case of such mature products. The decline can be arrested by improvements in the product and promotion. We should, however, at this time, seriously think in terms of a new product mix, that is, the elimination or redesign of the current product within the near future.

Finally, the decline stage catches up. The decline may be slow or rapid. It may be due to better substitute products, better competition, technological advances with which we have not kept up and several other reasons. Such a product now proves expensive for the organization. One must, therefore, be willing to consider the elimination of such marginal or unprofitable products. Eventually, the last weapon is to reduce the price. This is dangerous because this is a very crucial time when extra promotional effort is required to be put in to prop up the product’s sales. Reducing the price may soon land the company in a loss situation. 

3.3 Options in the Decline Stage

 Having considered the product life cycle and the inevitability of product decline, the question which comes to one’s mind is what should be done to avoid or postpone this decline. Consider some of the following points to avoid decline:

 i. improve product quality

ii add new product features resulting in extra benefits

iii. penetrate new market segments

iv.give incentives to distribution channels

v.expand the number of your distribution channels; and

vi.Improve advertising and sales effort.

Perhaps, the answer lies in the word ‘innovation’. That is why it is sometimes said that innovation is the life-blood of marketing. Innovation can be in any of the 4P’s of marketing. In connection with the product, it would mean quality improvement or improvement in features. Ultimately, a time may come when the product will have to be removed from the product mix.  

3.4 New Product Development Strategy

As you must have realized by now, it is very important to have a strategy for developing new products. Many products fail, and in order to keep expanding company sales, we must have new products. Some products of Unilever have failed, but still they remain leading manufacturers because they have continuously added to their lines and added product lines to their product mix. Several stages must be defined. Figure 3 gives the stages in new product development. These will now be discussed in details.

  

Fig. 3: Stages in New Product Development 

Generation of New Product Ideas The first step obviously is to get ideas with regard to possible new products. Can you think of the sources from which you can get such product ideas? Your answer should have been: Customers, Company Salesmen, Competitors, Company Executives, and Employees within the organization including technical people.

As marketing is aimed at satisfaction of consumer needs, an alert marketer can get some ideas from the customers for possible new products by keeping his eyes and ears open and more particularly the mind to perceive even needs which are so far unexpressed. For example, in the case of refrigerators, someone conceived the idea of having a ‘two-door’ refrigerator; another conceived the idea of the ballpoint pen which obviated the need for constantly filling fountain pens. Thus, new ideas can come from customer needs or problems requiring a solution.

 Company salesmen are in an excellent position to help. This is because they are in constant touch with the market, that is, both consumers and competitors. Watching competitors and what they introduce can also be useful for new ideas. Finally, company executives and even the lower staff can be brought in for discussions.

The interesting method here is what is known as brainstorming. This is basically done to have a flow of ideas – good and bad. A number of people, say executives of the organization, are called together and asked a question for new ideas or ideas for new products. They are asked to mention it without evaluation. None is criticized. The answers are recorded on a tape recorder so that the flow is not interrupted. Thereafter, the answers generated are evaluated as will be explained in the next stage. 

Evaluation or Screening of the Ideas So far, from the first stage, we have received a number of ideas – good and bad. We have now to screen and evaluate them to reduce their number to what is likely to be useful. This is known as the ’evaluation’ or ‘screening’ of ideas stage in this process. Poor ideas must be dropped immediately because unnecessary cost has to be incurred to process them further. The ideas must be consistent with the company’s philosophy, objectives and strategies and be in terms of the resources available in the organization. In general, the ideas are screened in terms of:

·         possible profitability

·         good market potential (market size)

·         availability of production facility

·         availability of raw materials for such a product, if selected

·         availability of finance

·         availability of managerial ability

·         uniqueness of product. 

Product Concept Development and Evaluation

Particularly when the product idea is rather revolutionary, the concept itself must be tested. For example, people talk about ‘battery driven cars’ to save on petrol. This is a concept which has to be tested in the environment in which the product is sought to be introduced. For example, Hindustan Lever failed with their Hima peas and Fast Foods. This was a failure of concept testing. 

Product Designing and Evaluation If the product idea or the concept passes the test, we then proceed to the engineering or the production or the Research and Development stage. So far, what we had was only a description or an idea. Now this has to be converted into a product. Prototypes are developed and tested. The test can be done under laboratory or field conditions. At this stage of product development, the technical problems, if any, must be solved. This is because the product must not suffer from complaints regarding quality in use. Even a small defect might shorten the life cycle of the product as well as spoil the company’s image. 

Product Testing Apart from mechanical performance, customer acceptance is essential. In fact, the following can be stated as requirements for the new product, after it is designed:

·         satisfactory performance

·         customer acceptance

·         economical production

·         adequate distribution

·         adequate servicing arrangements where required, and

·         effective packaging and branding.

A market test should, therefore, be conducted before launching the new product. This will help us find out whether the product can be launched successfully on a commercial scale or not.

Launching the New Product

 The test marketing may show up something as depicted in Figure 4.

Fig. 4:   Market Test Decision Tree (Alternative Decisions)

 It may show that the sales are ‘excellent’, in which case, our decision is easy and we can proceed to launch the product. As against this, if it shows that the sales are ‘poor’, there are generally two alternatives available from a practical viewpoint. We can drop the product or modify it and test it again. If the sales are ‘fair’, we may modify the product or conduct a new market test. The latter is done when we feel that perhaps there is something wrong with the market test just completed.

 An alternative, generally available, is to modify the product in terms of the feedback which has been received from the market test, and then test again before the final decision is taken to launch the product commercially or to drop it. One must, however, remember that constant testing involves further costs. A decision must, therefore, be arrived at as early as practicable.

 4.0 CONCLUSION

The introduction of a new product is not an easy decision. It has to be weighed very carefully in terms of possible markets, the costs involved and potential profits. 

5.0 SUMMARY

 In this note, we discussed: product life cycle concept marketing mix at different stages options in decline stage; and new product development strategy.   

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