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International Product Life Cycle Theory Essays

Essay about Product Life Cycle

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Product Life Cycle

A new product progresses through a sequence of changes from introduction to growth, maturity & decline. This sequence is known as the “Product Life-Cycle” & is associated with changes in the marketing situation, thus impacting the marketing strategy & the marketing mix.

Introduction Stage

In the introduction stage, the firm seeks to build product awareness & develop a market for a product. The impact on the marketing mix is as follows:

• Product :- Branding & quality level is established & intellectual property protection such as patents & trademarks are obtained.

• Pricing :- The pricing strategy maybe one of ‘low penetration pricing’ to build market share rapidly, or ‘high skim pricing’ to recover…show more content…

• Pricing :- It maybe a bit lower than previous stages because of increased competition.

• Distribution :- It becomes more extensive. Distributors maybe offered with incentives to encourage preference over competing products.

• Promotion :- Greater emphasis on product differentiation & retaining existing consumer base.

Decline Stage

As sales decline, the firm has several options:-

• Maintain the product, possibly rejuvenating it by adding new features & finding new uses.

• Harvest the product; reduce costs & continue to offer it, possibly to a loyal niche segment.

• Discontinue the product; liquidating the remaining inventory or by selling it to another firm that is willing to continue the product.

The marketing mix decisions in the decline phase will depend on the selected strategy. E.g. the product maybe unchanged if it is being harvested or liquidated. The price maybe maintained if the product is harvested, or drastically reduced if liquidated.

Some more extension strategies that extend the life of the product can be enumerated as follows:

• Advertising: Try to gain a new audience or remind the current audience about your product.

• Price Reduction: Reducing the price of your product to make it more attractive to consumers.

• Adding value to current product. E.g. video messaging on mobile phones.

• Add new products to same product line. E.g. new products with same brand name (“Line Extension”) or new product with a

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The product life-cycle theory was developed by Raymond Vernon in the mid-1960s. The theory presents an insightful analysis as to why in the twentieth century a large number of new products in the world were developed by the US firms and sold first in the US market.

Vernon pointed out that many manufactured foods, like automobiles, televisions, instant cameras, photocopiers, personal computers, semi-conductor chips, etc. go through a continuum or cycle that consists of introduction, growth, maturity, and decline stages. The location of production will shift to serve markets according to the stage of cycle a product is therein.

Stage 1: Introduction:

Most innovations take place where there is a nearby observed need and market for them. A Japanese company will develop a new product for Japanese market and a US company for the US market. The introductory phase is characterised by high expenditures (on market research, market testing, cost of launch, etc.) and possibly by financial losses.

Image Source: iskonsystems.com

Young better educated and more affluent sections of society are always attracted by novelties. The early production occurs in home location for the reason that manufactures want to be near to a home market to get consumer feedback and also to save on transport cost.

Technology is the tool to produce new products or to produce old products in new ways. Experimentation and improvement in design and manufacturing requires scientific and engineering inputs along with venture capital. Thus, production is possible only in industrialised countries.

Historically industrialised countries have been leaders in technological innovations. In the introductory stage a small amount of goods is also exported, again, to the industrialised countries, having high incomes and spend on novelties. Since the production process is not standardised in this phase, it remains labour-intensive.

Stage 2: Growth:

Over the time, market grows and enters the second stage called ‘growth’. Overseas demand grows. Competitors enter the market. Increase in demand may lead to foreign production in industrialised countries only, where the demand has gone up. At this stage production outside innovator-country would be sold in the producing country only (say Japan is the producing country and the US is the innovator).

This is so because the demand is high in Japanese market, the product will be molded according Japanese liking and the cost of production due to start up is likely to be high. There is incentive to improve production process at this stage, but due to variations in the product at home and abroad, the process still remains labor-intensive (but less than the first stage).

Stage 3: Maturity:

As the market in advanced countries mature, product and the process get standardised and price becomes the important competitive strategy. Due to intense competition, the production bases start moving to ith bor costs. Exporter-nations, thus, become importers. Capital intensity increases. The need for skilled labor is replaced by using low-skilled and semi-skilled labor. In the case of Weikfield India, a company owned by Malhotras, earlier used to import custards powder from the UK and Australia, now export to the US and Canada.

Stage 4: Decline:

With the saturation of market, the product enters the ‘decline’ stage. The production bases shift entirely too low-cost nations, like Asian industrializing economies. Over the life-cycle, production has moved from innovator-country to other industrialised countries to developing countries. The innovating-country becomes the importer. The pressure on high-income countries is to turn toward innovation of new products which starts the cycle over again.