Q.4 Explain the product life cycle theory.
Product Life Cycle Theory
Life cycle theory has been used since the 1970s to describe the behaviour of a product or service from design to obsolescence.
The typical pattern of a product is represented by a curve divided into four distinct phases: introduction, growth, maturity, and decline. Recent research in the area has focused on its use in decision making in areas ranging from those as broad as overall strategy to those as narrow as equipment replacement.
But does the product life cycle, or PLC, really tell the entire story? Consider the Ford Mustang. Since its 1964 introduction, the automobile has undergone several changes. Performance was increased with the addition of the 428 CobraJet in 1968 and Mach I styling in 1969. Another substantial change took place in 1971 with the introduction of the high-performance Boss 351. Then a true muscle car, the Mustang was detuned in 1974, when oil prices forced a more fuel-efficient redesign, called Mustang II. The fourth generation Mustang, introduced as the 1994 model, has been further refined and is more aerodynamic than its immediate predecessor. Yet it still shares roots with earlier models. A 302 V-8 is still offered, the wheelbase is similar, and if one looks closely enough, one can see its genesis in the 1964 model. The pattern evidenced by the life of the Mustang, then, is several curves of introduction, growth, maturity, and decline.
. Conventional Life Cycle Theory
In the introductory phase, sales are slow. The strategy is to create widespread awareness. Costs are incurred in building distribution and increasing awareness through heavy promotion. It is hoped that the investments made in new product introduction pay off and the product or service moves to the growth phase.
The firm may either build market share or profitability in the growth phase. Strategies here are to make differential changes that add value to the product and to target new markets. Marketing moves away from promotion through personal selling toward more mass media advertising. Just as predators react to attractive targets, competition begins to build as awareness increases and sales momentum builds. Unit manufacturing costs begin to fall as fixed costs are spread over more production units and workers move down the learning curve. The firm attempts to stay in the growth stage as long as possible.
Sales growth slows at maturity and the firm moves to defend market position. This is where marketing managers must pay the most attention. Promotion costs increase significantly. Cost reduction is crucial as competitors begin to lower prices and introduce improved versions of the product. With the lower prices come lower profits, and competitors begin to drop out. This is typically the longest lasting stage, with some market leaders holding their position over several decades.
The final stage is decline. Here the firm may continue to market the product hoping that competitors will discontinue their products. Other strategies are to maximize profit by eliminating as many product costs as possible as sales slow, or else to eliminate the product altogether.
· Life Cycle Elements
Design engineering, process engineering, product marketing, and production have been recurring elements in each stage of the product life cycle. In addition, end-of-life (EOL) issues must be addressed when the product approaches obsolescence. These elements vary in importance as the product or service moves through its life, thus creating waves of activity. The fact that they change in importance and magnitude requires that they be closely managed. Let’s begin our discussion of the individual elements with design engineering.
· Design Engineering
Design engineering is involved in the five phases of the new product introduction (NPI) process. Idea validation is first. Engineers take informal ideas and study the market for needs that are not being met by products currently being offered or planned. Technology, manufacturing capabilities, competition, and potential revenues are analyzed in the review.
· Process Engineering
The process engineering function is responsible for the production system. To that end, process engineers specify the type of system, equipment, tooling, layout, and flow used in manufacturing or service operations. Their task is to ensure the efficient production of each part or component. Traditionally, the first step is a review of the end item bill of materials, which identifies all the separate parts that make up the product or service to be produced in, or to flow through, the operation area. Once the bill of materials analysis is completed, the problem of which type of production system to employ may be tackled.
· Production
Production activity follows demand for the product or service; both are linked by manufacturing planning and control systems. Activity begins in earnest during production ramp-up. Equipment processes, and trained production personnel must be in place. Targets for product cost, conformance to specification, and overall quality must be met. As customer sales begin to speed up production, overhead per-unit costs decrease and direct costs increase.
· Relationships
Design engineering, process engineering, and production are all related. The purpose of presenting the traditional relationship here is to facilitate later comparisons with the five-element wave. The model is illustrated in Figure 3, which shows that traditional product engineering follows a linear path. The first step is design engineering, in which the good or service is taken from concept and detail design to prototyping. The product moves to process engineering, where technologies and production methods are evaluated as a system is set into motion. Finally, the product flows to production, where down-stream manufacturing activities, such as production planning and scheduling, take place. This is known as the over-the-wall method of product design and development, with each stage separate from the next.
· Product Marketing
New products are usually supported with high advertising budgets to build awareness and encourage an initial purchase. If the target is the entire market, a typical first strategy is to attack it with one theme. When resources are relatively limited, the business may choose to identify smaller, more homogenous concentrations within the market and tailor the advertising to those groups. Once the product becomes established, fewer advertising dollars per sales unit are required to encourage demand.
· End of Life
This element considers what happens when sales decline to the point at which revenues drop to a level that supposedly precludes continued production of a good by the firm. One strategy is to cease production and allow inventory levels to drop to zero. An alternative tactic is to attempt to give new life to the product and risk succumbing to what is known as "The Thomas Lawson Syndrome."