Ch 11 outline - Chapter 11 PRODUCT LIFE CYCLE Product live...

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Chapter 11 PRODUCT LIFE CYCLE Product live cycle-describes the stages a new product goes through in the marketplace: introduction, growth, maturity, and decline Figure 11-1: Two curves represent total industry revenue and total industry profit (which is the sum of sales revenue and profit of all firms producing the product) INTRODUCTION STAGE: o The product is introduced to its intended market. Sales grow slowly and the profit is minimal. Profit is minimal because there is large investment costs in product development. The objective in this stage is to create consumer awareness and stimulate trial (the initial purchase of a product by a consumer). Companies spend a lot of money on advertising in this stage. Advertising and promotion expenditures are used to stimulate primary demand.(just the product class). Then as competitors come in companies focus on selective demand (of a specific brand). o Gaining distribution can be hard and price can be high or low. High price at first can be used as “skimming strategy ”to help company recover costs of development. GROWTH STAGE: o Rapid increases in sales. Competitors start to appear. With more competitors = more aggressive pricing. Profit usually peaks in this stage. Advertising here is selective demand. Product sales grow at increasing rate because new people try or use the product and a growing proportion of “repeat purchasers”. A change in the product happens in this stage to differentiate products brand from competitors. You want as much distribution as possible in this stage. Examples of products in this stage: smart phones and digital cameras. MATURITY STAGE: o This is a slowing of total industry sales or product class revenue. Competitors begin to leave the market here. Sales increase at a decreasing rate as fewer new buyers enter the market. Marketing attention in this stage is focused on holding market share through further product differentiation and finding new buyers. Examples here: soft drinks and DVD players. DECLINE STAGE: o Sales drop here. Products o this stage tend to consume a disproportionate share of management and financial resources relative to their future worth. To handle a declining product a company will either use deletion or harvesting. DELETION: dropping the product from the company’s product line is the most drastic because in this stage some consumers still use the product. HARVESTING: a company retains the product but reduces marketing costs. The product is still offered but salespeople don’t use time to sell it or advertising.
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Ch 11 outline - Chapter 11 PRODUCT LIFE CYCLE Product live...

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