The Accountant March-April 2016

WORK PLACE
WORK PLACE
By Kellen Kiambati, kellenkiambati@gmail.com, Photo: Steve Jobs
APPLICATION OF
PRODUCT LIFE
CYCLE MODEL
Apple
1998
Apple
2015
3.0 INTRODUCTION STAGE
Characteristics
When the new product is first
commercialised, it enters the introduction
stage of the life cycle. This stage is
characterised by a slow sales growth and
profits are usually negative because of
the high costs of marketing associated
with the introduction. Many buyers are
unaware of the product and sales are
limited to a category of buyers known as
innovators. These buyers tend to be more
affluent, venturesome and from upper
social classes. Mobile phone innovators
include company chief executives, sales
representative, and tradespersons. These
adopt the product for business use while
others may buy it as a status symbol.
Regardless, these buyers will be influential.
There usually is no or little competition at
this stage.
Primary Objectives
The main objective here for the pioneer
is market expansion by stimulating
primary demand, i.e., demand for the
product category. For example, Apple has
taken upon itself to market its innovative
personal MP3 player. Sony did likewise
with its personal stereo, the Walkman, in
the late 1970s. The marketing objective at
this stage is, therefore, to create product
awareness and encourage trial.
the early adopters. The innovators, as
opinion leaders, serve to “legitimise”
the innovation through product use
and social interactions. The arrival of
major competitors and their combined
marketing strategies fuel sales growth
and industry profit rises. These events
necessitate different marketing objectives.
Primary Objectives
Facing competition, perhaps for the
first time, the pioneering company and
other leaders will need to maximise their
market shares by emphasising selective
demand, i.e., demand for a particular
brand. Here, the brand’s product features
and performance are stressed by extensive
promotion to both the trade and customers.
Stability of market shares of mainstream
brands is a characteristic of the next stage,
maturity. Therefore, the size of the market
share gained in the growth stage will tend
to persist in the maturity stage, the longest
and most competitive stage of the life
cycle. A brand with a small share at the
end of the growth stage will
find it hard to
survive
i n
the next phase.
Strategic Emphases
The competing brands are priced to
penetrate the now mainstream market,
both to secure intensive distribution and
build customer preference. The target
market is broader in demographic terms
and the product range, therefore, has to be
expanded to cater to the diverse needs of
the market.
The companies that enter at this stage
of the PLC are often large and formidable
competitors with similar access to the
core/basic technology. Technological
advancement is pursued vigorously
for product superiority. This leads to
improvements to a product’s form and
function, i.e., the physical attributes of a
product that can be evaluated objectively.
Examples include frost-free refrigerators,
digital mobile phones, ABS brakes and
stereo video cassette recorders.
5.0 MATURITY STAGE
Characteristics
This is, perhaps, the most
important turning
point of a
market.
1.0 INTRODUCTION
Many will be familiar with this timeless
model which not only describes the
stages in the sales pattern of a product
or product category, but also offers some
strategic directions for each stage. This
model is concerned with the sales pattern
& strategic directions for each stage of
a product’s life cycle. It is important to
differentiate between a product’s life
cycle (home loans), a product category’s
life cycle (variable, fixed, no-frill) and a
brand’s life cycle (Westpac, St. George’s,
BankWest, ANZ). With matured markets,
the life cycle model, for strategic planning,
is appropriate at the product category
level where one normally finds different
categories/variants at different stages of
the cycle.
2.0 APPLICATION OF THE
MODEL
The model can be used for analysis as
well as for strategy formulation. We shall
examine the former first. The PLC concept
attempts to provide managers with an
understanding of the characteristics of
each stage of the life cycle and, therefore,
can be used to predict future sales and
profit patterns.
Underlying the PLC concept is the
theory of diffusion of innovation, which
identifies categories of buyers (adopters)
of the innovation. By understanding
these buyers, marketers can plan for the
appropriate target market strategies. The
early buyers of a new product are called
innovators. The numbers are very small
because the new product has to prove
itself. If the product is satisfactory, it will
attract the next category of buyers, early
adopters. Later, mainstream buyers, early
and late majority, will start adopting the
product. Over time, the market becomes
saturated and sales come mainly from
product replacements. Eventually, sales
decline as new products appear and the
original product becomes obsolete. This
phenomenon gives rise to the distinct
S-shaped pattern of a typical product life
cycle.
The PLC concept provides a
framework for developing marketing
strategies in each stage of the product life
cycle. Bear in mind that these strategies
are appropriate for market leaders whose
behaviour parallel the industry. Lesser
competitors may need different strategies
to compete. In some ways, the PLC model
can be used as a forecasting or predictive
tool. It can enable marketers to forecast
the market characteristics of subsequent
stages as well as predict the strategies of
the leading competitors. This, of course,
assumes that the life cycle exhibits the
traditional pattern. Later, we will realise
that many life cycle patterns are more than
traditional, and the stages are of varying
duration. In the following section, we shall
examine the use of the PLC model both as
an analytical tool and as a planning tool.
These will be divided into characteristics,
objectives, and strategies for each stage of
the PLC.
Strategic Emphases
With innovators as the target market,
the pioneering company would
emphasise customer education/
trial through advertising and sales
promotion; and “push” for trade
acceptance (distribution
support). The product
design and function are
usually very basic because
of the new technology
involved. Price is often
cost-based and tends to
be very high reflecting the
“newness” of the innovation
and its associated R&D and
marketing costs. Potential
competitors, meanwhile,
monitor the market closely for
signs of customer acceptance.
4.0 GROWTH STAGE
Characteristics
This stage is characterised by
rapidly rising sales as the product
receives wide acceptance amongst
Steve Jobs
- American
information
technology
entrepreneur
and inventor
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