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Product Life Cycles

Managing the Product During Introduction

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Now that we have examined the fundamental characteristics of PLCs, we are ready to move into a detailed exposition of the strategies managers can employ during its different stages. As I indicated in my overview of the topic, an understanding of product life cycles for industries and brands provides some insight into how products should be managed at critical points in their lives. How we structure the marketing mix will change, in some cases quite drastically, from one life cycle stage to the next. 

Exhibit 1
Strategies for 
Managing 
The PLC 

Exhibit 1 contains the now familiar theoretical "S - shaped" industry life cycle. During the introductory stage, during which sales are slow to accumulate, the major marketing objective often is to create demand for the basic product category --  i.e. to create "primary demand." As a result, marketing strategy tends to focus on developing awareness, interest, trial, and acceptance for the product category.  These objectives are achieved via extensive use of advertising, sales promotions (coupons, free samples, games, contests, public demonstrations, trade shows), publicity and endorsements by celebrities.  These and other tools are employed to place the product in front of large customer groups and, at the same time, stimulate a high degree of interest surrounding the product. In general, the product must be promoted to both ultimate consumers and to the trade (middlemen). Heavy trade promotion is required to convince the channel to stock and sell the product.

Market Skimming as a Strategy for Introduction

Exhibit 2
A Skimming 
Strategy

sld0051.jpg (19968 bytes)

Several general strategies are available for introducing new products. One of the most common strategies is market skimming (Exhibit 2). When employing a skimming strategy, a high price is set for the product’s introduction and is generally accompanied by heavy promotional spending. Because of the high price employed, the product typically is positioned to innovators and early adopters. Of course, an assumption underlying the use of skimming is that the market is price inelastic and will be attracted to the unique characteristics of the innovation. 

In general, the product is promoted to emphasize its unique characteristics that make it attractive to innovators and early adopters.  Typically, products are promoted as unique, fashion-orientated, prestigious or very high in quality. 

Skimming is a particularly attractive strategy when marketers face high investments in research and development, or production and other marketing related start-up costs are high. Setting a high price for the product helps recover these costs quickly.  Skimming is also particularly attractive when the potential effects of competition can be minimized. This means that competitive entry can be forestalled, or delayed, because of patents, high investment costs, and customer preferences for particular brands.

Exhibit 3
Sony's Digital 
Camera

sld01932.jpg (31038 bytes)

A recent example of market skimming is provided by Sony’s Digital Mavica Camera (Exhibit 3). Introduced in 1997, this camera is targeted to innovators and early adopters of photographic and computer equipment. The camera was priced high, at around eight hundred dollars per unit. It was distributed in camera, computer, and electronics specialty stores. The camera was promoted heavily in print and electronic media targeted specifically to initial adopters. Little television and radio advertising was employed. Similarly, little use of sales promotions, such as coupons and rebates were used to support the initial launch.

Market Penetration as a Strategy for Introduction

Exhibit 4
A Penetration 
Strategy

sld0052.jpg (20133 bytes)

With a 'market penetration' strategy, price is set low for the product's initial introduction (Exhibit 4). Price is used aggressively to quickly buy market share via an appeal to the mass market -- the early majority and late majority adopter categories.  This strategy is attractive when the market is highly price elastic as the innovator and early adopter segments are rather small, but there exists a large mass market. The strategy is also attractive when the firm anticipates dramatic reductions in average unit costs of production and marketing, as a result of scale economies and experience curve effects that may be obtained with larger production runs.  

Market penetration is also useful when there exists a substantial threat of competitive entry, particularly when market entry is relatively easy. Employing a penetration strategy may allow the firm to gain market share quickly, thereby achieving scale economies and an associated low cost structure that cannot be matched by potential competitors. The firm's high market share combined with low unit costs may send a distinct signal to potential competitors that profitability will be difficult to obtain if the market is entered. 

The Pioneering Advantage of Early Entry

With both the market skimming and market penetration strategies there is a distinct advantage to being the first in the market. This advantage is referred to as the pioneering advantage. The market pioneer generally enjoys a competitive advantage stemming from higher market share and lower unit cost structures than do later market entrants.[1] 

Being the market pioneer does not always guarantee market dominance and success. Some pioneers become complacent. They fail to continue to improve their products, have inadequate marketing programs that fail to properly position the product and, consequently, create and maintain sufficient customer demand. These weaker pioneers are highly susceptible to aggressive "followers" that enter a market later with lower prices, improved technologies and products, and more precisely targeted marketing programs.

1William T. Robinson and Claus Fornell, "Sources of Market Pioneer Market Advantages in Consumer Goods Industries," Journal of Marketing Research, August 1985, pp. 305-17.)

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Page last modified: February 19, 2001