Explain the various stages and strategies in the life cycle of a product.
The various stages in the product life cycle along with suitable business strategies for each stage. These strategies may be adopted by the Indian jute sector to survive and prosper in the domestic sector as well as in overseas markets.
In this phase, a firm conceives of the idea of a product, develops the product on a limited scale and tests its profitability before finally deciding to introduce it in the market place. Conception of ideas, creation or development and testing of the product involves huge investments in Research and Development (R&D).
Therefore, at this stage of a product’s life, the firm will have lots of expenses to incur but no profits. The diagram shows that in incubation phase, the profit line is sinking below the axis. At this stage, the individual firm should adopt a cautious approach and develop those products which involve lesser investment and have brighter prospects. The decisions must be based on reliable information from the market.
After testing, a product enters the introduction stage during which the public is acquained with the merits of the new product and acceptance is gained. Since the product is new to the public and customers take time to shift from the existing product; sales and profits are at a low level. Sales begin to build up as the prospective customers learn of the-product from advertising and other promotional avenues. The firth may even incur losses at introduction stage.
The firm may adopt any one of the following marketing strategies in the stage:
High-brow strategy: Under this strategy the firm advertises the product on a large scale and follows it up with a high price. This is done with a view to dominate the market, to shorten the introduction stage, to speed up customer awareness and acceptance, and to recover as much profit as possible.
Selective penetration strategy: Under this strategy, the firm combines high price with a modest promotional campaign. The purpose of high price is the same as in the first strategy but the purpose of modest promotion is to keep the cost on this element low. This policy is effective if competition is not serious and if the potential customers are limited in number, are aware of the product and do not mind a price.
Pemptive penetration strategy: This strategy aims at penetrating the market to prevent the entry of competitors. The strategy uses the weapons of low price and a huge promotional campaign. The margin may be low but total profit volume could be moderate. If buyers are price sensitive and they also need persuasion as to the product, this strategy is ideal.
Low profit strategy: Under this strategy, the firm keeps both the price and the promotional effort low. This strategy stems from the belief that there is a large, knowledgeable market demand for the product which is highly price elastic but only marginally promotion-elastic.
If the product is accepted by potential buyers, it usually enters a rapid-growth stage. Sales volume and profits rise rapidly as new customers give the product a try and the early buyers go for repurchasing it. The product may gain reputation by word of mouth, advertising or acceptance by opinion leaders. Due to greater sales, the firm bothers less about promotion costs.
Price remains high during growth stage to recoup heavy introduction losses. During later growth phase, prices are lowered as other competitive firms try to prolong the growth period as much as possible to take advantage of rising profits.
In this stage, an enterprise may maintain or improve its competitive position through such strategies as product improvement, introduction of new models and additional sizes, looking for new market segments, establishing highly effective distribution channels and building up a skillful sales promotional campaign.
Growth rates remain stable during maturity period but eventually decline as the backlog of potential buyers is exhausted. Competition is tough and pressure to reduce price forces some firms to get out of the market. The maturity stage usually lasts longer than the introduction of growth phases. Customers develop loyalty to certain brands on the basis of their personal liking and sales for a particular product are mostly limited to the customers who are satisfied with that product. Prices are lower and comparatively stable among competitors.
During this stage following strategies may be adopted:
- The firm should broad-base the product appeal to a large cross section of the market. The end-uses of the product are also sought to be diversified.
- Another strategy can be to induce the present customer groups to purchase more or to bring into the net new customer groups.
In the decline phase, the product starts fading and the product loses a sizeable number of customers. Both sales and profits go down steadily. Many firms leave the market and only few firms produce the product. Ultimately the firm may drop the product from the market. At this stage, the firm should identify and isolate obsolete products which are to be phased out gradually.