The product life cycle (PLC) is a useful concept to describe how products progress from introduction through to obsolescence. The theory is that products, like living things, have a natural life cycle beginning with introduction, going through a growth phase, reaching maturity, then going into decline, and finally becoming obsolete.
In the introduction phase, the product's sales grow slowly, and the profit will be small or negative because of heavy promotion costs and production inefficiencies. If the product is very new, there will also be the need to persuade retailers and others to stock the product. In the growth stage, there will be a rapid increase in sales as the product becomes better known. At this stage profits begin to grow, but competition will also be entering the market so the producer may now need to think about adapting the product to meet the competitive threat.
In the maturity phase the product is well known and well established: at this point the promotional spend eases off and production economies of scale become established. By this time competitors will almost certainly have entered the market, so the firm will need to develop a new version of the product. In the decline phase, the product is losing market share and profitability rapidly. At this stage the marketer must decide whether it is worthwhile supporting the product for a little longer, or whether it should be allowed to disappear; supporting a product for which there is little natural demand is very unprofitable, but sometimes products can be revived and relaunched, perhaps in a different market. The assumption is that all products exhibit this life cycle, but the timescale will vary from one product to the next. Some products, for example computer games, may go through the entire life cycle in a matter of months. Others, like pitta bread, have a life cycle measured in thousands of years, and may never become obsolete. The product life cycle concept is a useful way of looking at product development, but like many simple theories it has a number of flaws:
To answer some of these criticisms, Enis et al.3 re-designed the product life cycle. In this more detailed model, the maturity phase now includes a section of maintenance, and one of proliferation. Maintenance is where the marketing manager is using various tactics (sometimes called mid-life kickers) to keep the product in the public eye and maintain sales, and proliferation is where the firm introduces variations on the original product in order to extend the life cycle. Sometimes these maintenance tactics will keep the product alive and successful for many years, but eventually the PLC theory implies that the product will be superseded and will go into decline. Note here that the PLC concept is useful to describe what is happening, but is not much use for predicting what is going to happen, since it is virtually impossible to tell how long the maturity phase will continue. This makes it difficult to use as a decision-making device; marketers are not easily able to tell which part of the product life cycle the product currently occupies. A temporary fall-off in sales might be caused by extraneous factors such as recessions or new competitive activity, without actually heralding the beginning of the decline phase. Most firms produce several different products at the same time, and it is possible to superimpose the PLC diagrams for each product onto the graph to give a composite view of what is happening to the firm’s product portfolio. This will give a long-term overview, but the problems of prediction still remain; for many managers, a ‘snapshot’ of what is happening now is more useful. The Boston Consulting Group (BCG) developed a matrix for decision-making in these circumstances.
Like the product life cycle, the BCG matrix is a simple model that helps marketers to approach strategic product decisions; again, like the PLC, it has a number of flaws. It is based on the following assumptions:
In 1982 Barksdale and Harris proposed two additions to the BCG matrix.
The BCG matrix has proved a useful tool for analysing product portfolio decisions, but it is really only a snapshot of the current position with the products it describes. Since most markets are to a greater or lesser extent dynamic, the matrix should be used with a certain degree of caution. The size of the product portfolio and the complexity of the products within it can have further effects on the firm’s management. For example, it has been shown that manufacturing a wide range of products with many options makes it difficult for the firm to use just-in-time purchasing techniques, and complicates the firm’s supply activities.
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