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Product Life Cycle (PREVIOUS EXAM QUESTIONS #, ANSWERING QUESTIONS, Within…
Product Life Cycle
PREVIOUS EXAM QUESTIONS #
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Within the question, you should address the following:
- What is the PLC? Explain different stages of the diagram (draw)
- What are the advantages of using PLC in determining business strategies
- What are the disadvantages of using PLC in determining business strategies
Advantages of PLC:
- Planning - businesses can plan when to invest in R&D or manufacturing, and when to divest
- Helps in evaluating previous performance - success/failures of products i.e. facilitates organisational learning
- Sales forecasts can be made
- Appropriate partnership strategy can be made - 1. Introduction phase (more R&D based collaboration) 2. Growth phase (more manufacturing based collaboration 3. Maturity phase (more marketing based collaborations
- Appropriate marketing strategy can be made - 1. Introduction phase (marketing to gauge customer requirements) 2. Growth phase (promotion, advertisement to introduce the product) 3. Maturity phase (promotion, advertisement to re-sell the product)
Disadvantages/criticisms of PLC:
- Difficult to know when a particular stage starts/ends in the real world
- PLC concept may only work in a stable environment (does not explain the role that the nature of the social system may play in initiating premature decline)
- Many products fail in the introduction phase, so forecasting sales based on PLC wouldn't work
- PLC says that companies should not invest in products that are declining...BUT some products stay in the market forever e.g. fax machines, pagers, walkie talkies
Products, like people, have been viewed as having a life cycle (look at evolutionary economics)
- PLC describes the stages a new product goes through in the market place: 1. Introduction 2. Growth 3. Maturity 4. Decline
- The concept is widely used and also criticised, it is a theory >50 years old
- Although PLC is not focused on technology itself, technology is often an important determinant of PLC - the theory is presented as a cognitive framework (a way of thinking about many interrelated concepts)
As products and markets change, there are incremental innovations which may improve the performance of a product on existing criteria e.g. for cameras, the colour may be more accurately reproduced or it may be lighter/cheaper
BUT when considering a longer time span, the aggregate impact of many years of innovation may result in a very different products e.g. a 1920 car vs a 2018 car
PLC s-curve:
Vertical axis - usually sales i.e. total revenues (but sometimes market penetration and saturation/diffusion - max 100%)
Horizontal axis - stage of PLC
Business issues at different stages of the PLC:
- Pricing strategy
- Product strategy
- Marketing strategy
- Manufacturing
- Distribution
- Competition
- Buyers
- Costs
- Profit margins
- Standards
Summary of strategy at advancing stages of the PLC:
Introduction - R&D and engineering are the key
Growth - marketing is the key function
Maturity - marketing and cost competitiveness are the key
Decline - cost control is critical for survival
Criticisms of the PLC:
- The PLC can be changed by external forces, such as changes in demand over the lifetime of the product, it is therefore not 'deterministic' - not predetermined or unchangeable, strategic decisions can rejuvenate/halt a product's dynamic
- PLC has little to say about what the maximum level of sales/saturation will be, may be >100% (e.g. how many microwaves does each household own - usually only 1)
- What are the units on the horizontal axis?
- Nature of competition at each stage of the PLC varies between industries
- Can lead to neglect of the importance of process innovations
- Path dependence and industry evolution
- Very little theory behind the life cycle
- It is a broad summary on what happens, with little explanation of why things happen
The 'Product Life Cycle' can be a useful framework in which to consider the management of innovative products. Explain this view and also consider the criticisms which have been made of the concept. (2014) #
Explain what is meant by the 'Product Life Cycle' using examples. Discuss whether this is a useful concept. (2015) #
Is the Product Life Cycle useful when analysing the nature of product changes over time? Discuss the advantages and disadvantages of the PLC perspective, using examples. (2016) #
The Product Life Cycle is a much used, yet much criticised concept. Explain why this is so, using examples. (2017)
Introduction Stage: uncertainty, what is the product?
- Small scale production
- Skill intensive
- Few, pioneer consumers
- Growth is uncertain due to: Buyer ignorance, not enough buyers to demonstrate the product and start the bandwagon effect, uncertainty about industry standards, advertising aimed at informing 'ignorant' potential customers (establishing product awareness and knowledge and building a market)
Growth Stage
- Rapid growth due to: Buyer inertia is overcome, buyers know more about the product (they are starting to understand what it is and what it does), bandwagon effect in progress, prices are falling, industry standards position is clearer (less risk), firms attempt to establish brand awareness and market share, 'dominant design' established?
Maturity Stage
- Product well understood by producers and consumers
- Increasing competition (firms try to defend market share, perhaps differentiating their products
- Profit maximisation?
- Decline in number of competitors
- Little growth in market because: saturation reached in target group of customers, sales depend upon growth in target population and replacement/repeat sales, advertising and marketing (persuading customers to change make or brand)
Decline Stage
- Sales fall because: other competing products appear offering better performance or price etc. (but is the replacement a 'new product' or an improvement of the existing product, severe price competition reduces number of producers and marketing efforts, costs are crucial (higher cost producers leave the market, manufacture goes to low cost countries), economies of scale at first reduce costs to high volume producers - other leave - but falling sales reduce volumes, product becomes a commodity (many companies can make it, prices down to low cost + minimal profits, perhaps sales level out and product maintains a niche market