⒈ Advantages Of Product Life Cycle

Saturday, October 30, 2021 6:29:14 AM

Advantages Of Product Life Cycle



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Most companies like to think of themselves as being particularly good relative to their competitors in certain areas, and they try to avoid competition in others. Their objective is to guard this distinctive competence against outside attacks or internal aimlessness and to exploit it where possible. From time to time, unfortunately, management becomes preoccupied with marketing concerns and loses sight of the value of manufacturing abilities. When this happens, it thinks about strategy in terms only of the product and market dimension within a product life cycle context. In effect, management concentrates resources and planning efforts on a relatively narrow column of the matrix shown in Exhibit I on page 4.

The advantage of the two-dimensional point of view is that it permits a company to be more precise about what its distinctive competence really is and to concentrate its attentions on a restricted set of process decisions and alternatives, as well as a restricted set of marketing alternatives. This would place it in the lower left corner of the matrix. In a sense, then, it was mass producing designs rather than boards.

Hence, the company was not far off the diagonal after all. As a company undertakes different combinations of product and process, management problems change. It is the interaction between these two that determines which tasks will be critical for a given company or industry. Along the process structure dimension, for example, the key competitive advantage of a jumbled flow operation is its flexibility to both product and volume changes. As one moves toward more standardized processes, the competitive emphasis generally shifts from flexibility and quality measured in terms of product specialization to reliability, predictability, and cost.

A similar sequence of competitive emphases occurs as a company moves along the product structure dimension. These movements in priorities are illustrated in Exhibit II. For a given product structure, a company whose competitive emphasis is on quality or new product development would choose a much more flexible production operation than would a competitor who has the same product structure but who follows a cost-minimizing strategy. Alternatively, a company that chooses a given process structure reinforces the characteristics of that structure by adopting the corresponding product structure. The former approach positions the company above the diagonal, while the latter positions it some where along it.

For example, a marketing-oriented company seeking to be responsive to the needs of a given market is more likely to emphasize flexibility and quality than the manufacturing-oriented company that seeks to mold the market to its cost or process leadership. An example of these two competitive approaches in the electric motor industry is provided by the contrast between Reliance Electric and Emerson Electric. Reliance, on the one hand, has apparently chosen production processes that place it above the diagonal for a given product and market, and the company emphasizes product customizing and performance. Emerson, on the other hand, tends to position itself below the diagonal and emphasizes cost reduction.

Each company has sought to develop a set of competitive skills in manufacturing and marketing that will make it more effective with in its selected quadrants. Concentrating on the upper left versus the lower right quadrant has many additional implications for a company. The management that chooses to compete primarily in the upper left has to decide when to drop or abandon a product or market, while for the management choosing to compete in the lower right a major decision is when to enter the market. In the latter case, the company can watch the market develop and does not have as much need for flexibility as do companies that position themselves in the upper left, since product and market changes typically occur less frequently during the later phases of the product life cycle.

Such thinking about both product and process expertise is particularly useful in selecting the match of these two dimensions for a new product. Those familiar with the digital watch industry may recall that in the early s Texas Instruments introduced a jewelry line digital watch. This product represented a matrix combination in the upper left-hand quadrant, as shown in Exhibit II. Unfortunately, this line of watches was disappointing to Texas Instruments, in terms of both volume and profitability. If management considers the process structure dimension of organizational competence and strategy, it can usually focus its operating units much more effectively on their individual tasks.

For example, many companies face the problem of how to organize production of spare parts for their primary products. While increasing volume of the primary products may have caused the company to move down the diagonal, the follow-on demand for spare parts may require a combination of product and process structures more toward the upper left-hand corner of the matrix. There are many more items to be manufactured, each in smaller volume, and the appropriate process tends to be more flexible than may be the case for the primary product. To accommodate the specific requirements of spare parts production, a company might develop a separate facility for them or simply separate their production within the same facility.

Probably the least appropriate approach is to leave such production undifferentiated from the production of the basic product, since this would require the plant to span too broad a range of both product and process, making it less efficient and less effective for both categories of product. The choice of product and process structures will determine the kind of manufacturing problems that will be important for management. Some of the key tasks related to a particular process structure are indicated on the right side of Exhibit II. Such a task-oriented analysis might help a company avoid the loss of control over manufacturing that often results when a standard set of control mechanisms is applied to all products and processes.

While a fairly narrow focus may be required for success in any single product market, companies that are large enough can and do effectively produce multiple products in multiple markets. These are often in different stages of the product life cycle. However, for such an operation to be successful, a company must separate and organize its manufacturing facilities to best meet the needs of each product and then develop sales volumes that are large enough to make those manufacturing units competitive. This foundry has five plants in Virginia. As Exhibit II shows, these plants represent different positions on the matrix. One plant is a job shop, making mostly one-of-a-kind products. Two plants use a decoupled batch process and make several major products.

A fourth plant is a paced assembly line operation that makes only a few products, mainly for the automative market. The fifth plant is a highly automated pipe plant, making what is largely a commodity item. While the basic technology is somewhat different in each plant, there are many similarities. However, the production layout, the manufacturing processes, and the control systems are very different.

This company chose to design its plants so that each would meet the needs of a specific segment of the market in the most competitive manner. Its success would suggest that this has been an effective way to match manufacturing capabilities with market demand. Companies that specialize their operating units according to the needs of specific, narrowly defined patches on the matrix will often encounter problems in integrating those units into a coordinated whole. A recent article suggested that a company can be most successful by organizing its manufacturing function around either a product-market focus or a process focus.

Companies in the major materials industries—steel companies and oil companies, for example—provide classic examples of process-organized manufacturing organizations. Most companies that broaden the span of their process through vertical integration tend to adopt such an organzation, at least initially. Then again, companies that adopt a product- or market-oriented organization in manufacturing tend to have a strong market orientation and are unwilling to accept the organizational rigidity and lengthened response time that usually accompany centralized coordination. Most companies in the packaging industry provide examples of such product- and market-focused manufacturing organizations.

Regional plants that serve geographical market areas are set up to reduce transportation costs and provide better response to market requirements. A number of companies that historically have organized them selves around products or markets have found that, as their products matured and as they have moved to become more vertically integrated, a conflict has arisen between their original product-organized manufacturing facilities and the needs of their process-oriented internal supply units. As the competitive emphasis has shifted toward cost, companies moving along the diagonal have tended to evolve from a product-oriented manufacturing organization to a process-oriented one.

However, at some point, such companies often discover that their operations have become so complex with increased volume and increased stages of in-house production that they defy centralized coordination and management must revert to a more product-oriented organization within a divisionalized structure. We can now pull together a number of threads and summarize their implications for corporate strategy. Companies must make a series of interrelated marketing and manufacturing decisions. A company may choose a product or marketing strategy that gives it a broader or narrower product line than its principal competitors.

Such a choice positions it to the left or right of its competitors, along the horizontal dimension of our matrix. Having made this decision, the company has a further choice to make: Should it produce this product line with a manufacturing system—a set of people, plants, equipment, technology, policies, and control procedures—that will permit a relatively high degree of flexibility and a relatively low capital intensity? Or should it prefer a system that will permit lower cost production with a loss of some flexibility to change in products, production volumes, and equipment and usually a higher degree of capital intensity? This choice will position the company above or below its competitors along the vertical dimension of our matrix.

There are, of course, several dynamic aspects of corporate competitiveness where the concepts of matching the product life cycle with the process life cycle can be applied. In this article, however, we have dealt only with the more static aspects of selecting a position on the matrix. Companies focus on the high-income group at the introductory stage to buy their products because products are priced higher at this stage. High prices are diseconomies of scale of production at this stage and higher expenditures in areas mentioned above. The high price results in low sales during this stage.

As a result, the profit curve is typically negative. Marketing managers need to formulate strategies regarding marketing mix elements for the introductory stage of the product. You know that the basic marketing mix elements are: product, price, promotion, and distribution. Regarding the marketing mix elements, a company may decide to pursue a skimming or penetration strategy. It may either go for rapid skimming or slow skimming strategy. Similarly, the company may decide to pursue rapid penetration or slow penetration strategy. In case the company decides to follow the rapid skimming strategy, it sets the price arbitrarily high to capture the early purchaser of the product. This strategy is used to maximize short-term profit. Companies under this strategy may also go for producing higher quality products, promoting them aggressively, and distributing them through selective distribution channels.

Under the slow skimming strategy, a product is offered to the market at a high price, but the promotion is not as aggressive as the rapid skimming strategy. The company can gain a substantial amount of profit following such a strategy. Since the promotion costs are lower but the price is high, it enables the firm to make a sizeable profit. In contrast, in the rapid penetration strategy, the firm sets the price at a low level but aggressively promotes it.

The intention is to discourage competition and appeal to a greater portion of the segment on the onset. A company may effectively use this strategy if the market size is significantly large, the majority of the market is unaware of the product and very much price-sensitive, and there is a small potential competition. By lowering the price and earning a smaller gross margin, fewer competitors will be attracted to the marketplace than if a skim strategy were used.

The executive has extra time to solidify its position in the market and capture a greater market share. Under the slow penetration strategy, a product is introduced in the marketplace at a low price. The promotion under this policy is not aggressive as well. If the company senses that the size of the market is substantially large, buyers are mostly aware of the product and price-sensitive, and competition is existent, it may decide to pursue the slow-penetration strategy.

It will help the company capture a significant portion of the market, taking advantage of its high price and low promotion costs. Penetration strategy is normally used when the executive intends to keep the product on the market through all or most of the life cycle. Instead of quickly recouping costs and generating profits as would occur with a skim strategy, the marketing executive hopes for even greater long-term profits. Although firms have used both strategies successfully, penetration is the most common. It is used for nearly all types of products, while skim is typically reserved for fashion, fad, and novelty items with fairly short life spans.

During the growth stage, sales rise rapidly; profits reach a peak and then start to decline. The growth stage of the product life-cycle is characterized by several new factors. As it gains market acceptance, the channels of distribution become more open as wholesalers and retailers increase their willingness to carry the product. This prosperity may also attract other companies, and the greatest number of competitors enter the market. Faced with a growing choice of products, the consumer may become confused and uncertain about selecting.

The market is turbulent during the growth stage as competitors enter and fight for share. Even measuring the exact market share is difficult since the new users are growing. This does not mean that there are no profits at this stage. It is likely that a company earns more profit during this stage as sales go up, and promotion expenditures are spread over larger sales volume. Moreover, as the company gains experience, the cost of production per unit comes down, resulting in higher profit.

Since the competition is increasing and the market is expanding during the growth stage, the marketing executive moves away from a strategy of cultivating demand to one of market entrenchment — the struggle for brand acceptance and market share. In a related sense, the increased competition and the desire to build a larger market share tend to reduce some slight price reduction. However, the price still stays relatively high, and the company reaps substantial profits. In almost all of the products, there will be a time when sales growth will slow down. At this stage, products have leveling demand, and competition will minimize the profit potential.

At this stage, a company requires a highly efficient organization, such as a functional pyramid type, to maximize profits from steady sales. We can divide this stage into three parts. Competitors emphasize improvements and differences in their versions of the product. Consequently, weaker competitors at this stage are squeezed out or lose interest in the product. Companies that did not establish a healthy market share during the growth stage drop out.

Sales growth slows as most potential customers have been reached. Profits are high but begin to decline as market leaders cut prices to gain market share. Profits remain large and mature products become the cash cows of the company, providing funds for the development of new products. The price of a product will also drop sharply at this stage because of the widespread availability of a substitute.

As the sales growth slows down, it creates overcapacity problems for the firms, making competition severe. To survive in the face of extreme competition, firms increase their advertising, promotion, and research and development expenditures significantly. These increased expenditures further reduce the profits of the firms. This situation compels weaker firms to withdraw themselves from the market, and as a result, only the competent ones survive.

Among the survivors, there are two types of firms — those who are giants, including the quality leader, service leader, and cost leader, and those who are serving and satisfying their small target markets — that operate in the marketplace. The combined effect of lower prices and higher costs results in a declining profit curve. In fact, during the latter part of the maturity stage, some competitors will withdraw their products because insufficient or no profits remain. Those who remain in the market make fresh promotional, and distribution efforts; advertising and dealer oriented promotion are common during this stage. There is no reason to think that mature product is static; improvements can be made on the basic product, and variations can be offered.

Although market leaders generally have the resources to expand their offerings, gaining market share is difficult and expensive. The best-managed companies, therefore, try to hold and improve their share slightly while diverting profits from successful mature products into the development and introduction of new ones. A company at this point has to look at the merits for revitalizing the product or allowing it to decline slowly, or killing it off and planning a replacement.

If this occurred through the introduction of a new competitive product with additional benefits, the company might choose to add similar benefits to its product, to add new but different services, or to reduce the present price and emphasize its value for money, perhaps trying to reach a new, more price-sensitive market in doing so. Marketing is about selecting strategies that are either designed to counteract threats or to take advantage of opportunities in the marketplace. At some point in time, the sale of a product is bound to decline. Most products eventually pass from maturity to a fourth stage of the life-cycle: decline and eventual elimination.

This stage is characterized by a further dropout of competitors until only a few remain. The promotion of the product is reduced or discontinued. Any remaining profit will not be reinvested in the product; no attempt will be made to rebuild demand. There are several reasons why a product declines. Perhaps a very limited number of firms will find this stage profitable. The production costs will be fairly low, and the marketing efforts will all but cease, making it possible to earn a respectable profit margin. At some point in the decline stage, however, the marketing executive will have to withdraw the product.

A marketer can follow the harvesting strategy , divestiture strategy, niche or focus strategy , differentiation strategy , low-cost strategy for a declining industry. Although there is little that can be done about basic shifts in consumer preferences and the entry of competitive items, the firm has a wide range of alternatives that can be exercised for products with falling sales. Before one decides on alternatives, it is imperative to identify the marginal products. After they are identified, managers need to arrive at decisions regarding their fate. It is one of the most serious tasks of marketers to identify weak or marginal products. In smaller companies, managers know of the declining products, and hence a formal review procedure need not be followed.

Where product lines are broad, a committee should work to identify the weak items. This responsibility should not entirely be the rest of the marketing department because of the danger of bias. The committee of product review should consist of executives from marketing, production, purchasing, control, personnel, and research and development departments. The review process should include a two-stage procedure. Products should first be screened based on sales trends, market share trends, gross margin trends, and overhead trends. A particular product fails to pass minimum standards on the above factors; it should undergo further analyses based on some other factors.

In the second stage, products should be scaled based on market potential, contribution, relationship to sales of other products, and so on. This analysis will help the company decide on the strategies regarding the products. These strategies could be;. A company, based on the analysis made by the product review committee, may decide to drop an existing item from its product line s. The first strategy that a company may pursue regarding this is to do nothing and wait until there are no longer any orders for the item.

Here the company can drop all promotional activities and rely solely on repeat purchases from current customers. Another strategy could be to continue selling a declining product but having a contract with another company to manufacture it. Yet, another option could be to produce the item but selling through other under licensing arrangements. The other strategy is to sell the product to another firm and let them worry about manufacturing and marketing the item. When none of the above strategies is found suitable, the firm should dispose of the product with a minimum inconvenience to the parties concerned.

It is very difficult to get an answer to such a question. It is also difficult to ascertain when a particular stage starts and when it comes to an end, marketers usually identify stages based on the sales growth or decline rate. There should have periodical reviews by the marketers on different stages to decide on courses of action to combat competition. In the following few paragraphs, we shall focus on product-category, product form, product, and brand life cycles. Using the product life-cycle concept, you may analyze a product category home entertainment or electronic items , a product form audio-visual equipment , a product television , or a brand Sony.

Let us now have some idea on the life cycle of each of the above :. The life cycle of a product category is found to be longer. Electronic items, for example, will stay in the growth or mature stage for an indefinite period. We also find that some of the product categories have entered into the decline stage, such as VCP, while others are clearly in the growth stage, such as computers. The product form the life cycle follows more or less the same pattern as the standard product life cycle. For example, the VCPs video cassette player passed through the four stages of the life cycle. It is expected that VCD video compact disc players will also pass through these stages introduction, growth, maturity, and decline.

The life cycles of brands vary. Some brands are withdrawn from the market shortly after their introduction because customers do not favor them. They have a very short life cycle. Again, there are other brands found to be inexistent in the marketplace for decades, such as Lux. These brands have long life cycles. A particular product may either follow the shape of the standard product life cycle takes bell shape, or it may follow some other shapes discussed later this lesson.

Let's have an one-on-one conversation What's your phone number? This level of efficiency advantages of product life cycle at a cost: developers advantages of product life cycle spend more time on tasks. If you Essay On Speed Dating advantages of product life cycle team to just do your marketing for you, click here. It is found from different studies that life cycle patterns may vary from six to seventeen types, of advantages of product life cycle three are common.

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