S TARTER QUESTION 3 1 4 PRODUCT LIFE

S TARTER QUESTION 3. 1. 4 PRODUCT LIFE CYCLE

What is a life cycle? Put these stages of our life cycle in order Teenager Child Birth Middle Aged Pensioner Conception Young Adult Baby 3. 1. 4 P RODUCT LIFE CYCLE 3. 1. 4 PRODUCT LIFE CYCLE

L EARNING O BJECTIVES All– Identify five phases of the product life cycle. (D/E grade) Most– Describe the features of each stage of the cycle and how net cash flow is affected (B grade) Some – Explain how the marking mix might change during each stage (B/A grade)

Product Life Cycle A product life cycle shows the sales of a product over time. There are five stages associated with the product life cycle: Research & Development (R&D) Introduction Growth Maturity Decline A business may use extension strategies to prolong the life of the product when it is in decline. 3. 1. 4 PRODUCT LIFE CYCLE

All– Identify five phases of the product life cycle. (D/E grade) Sales Revenue T HE P RODUCT L IFE C YCLE Iphone 6 Iphone 5 Iphone 7 Time

Product Life Cycle R&D Introduction Consumers become familiar with the product and repeat custom is built up Maturity The product is launched onto the market. This might be expensive as the firm advertises in order to promote the product Growth The product does not yet exist as companies are putting in a lot of money and time to develop a new product Sales reach a peak and start to level off. Competition becomes stronger Decline Product sales start to fall and the firm will decide on an extension strategy or discontinuing the product 3. 1. 4 PRODUCT LIFE CYCLE

W RITE THE NAMES OF THE PRODUCTS ON TO THE PLC IN THE CORRECT STAGE XBOX One

All– Identify five phases of the product life cycle. grade) (D/E Challenge THINK ABOUT THIS – What are the main factors that determine the length of the product life cycle? What might push them into decline?

T HEY ARE NOT ALL THE SAME SHAPE/LENGTH ! Can you think of 2 products with a short PLC and 2 products with a long PLC?

Product Life Cycle Examples 3 D Televisions: 3 D may have been around for a few decades, but only after considerable investment are 3 D TVs available for the home, providing a good example of a product that is in the Introduction Stage. Blue Ray Players: With advanced technology delivering the very best viewing experience, Blue Ray equipment is currently enjoying the steady increase in sales that’s typical of the Growth Stage. DVD Players: Introduced a number of years ago, manufacturers that make DVDs, and the equipment needed to play them, have established a strong market share. However, they still have to deal with the challenges from other technologies that are characteristic of the Maturity Stage. Video Recorders: While it is still possible to purchase VCRs this is a product that is definitely in the Decline Stage, as it’s become easier and cheaper for consumers to switch to the other, more modern formats.

P RODUCT L IFE C YCLE As you watch this video clip make some additional notes on the product life cycle 3. 1. 4 PRODUCT LIFE CYCLE

R&D S TAGE W HY SPEND SO MUCH? What is happening to NET CASH FLOW at this time? Describe the features of each stage of the cycle and how net cash flow is affected (B grade)

L AUNCHING THE PRODUCT Why is the launch stage so important? How do Apple do this so well? Marketing, advertising, creating awareness What is happening to NET CASH FLOW at this time? Describe the features of each stage of the cycle and how net cash flow is

T HE G ROWTH P HASE In the growth phase of the cycle, what should be increasing? Sales and profit What will happen competition? to your What is happening to NET CASH FLOW at this time? Describe the features of each stage of the cycle and how net cash flow is

P RODUCT MATURITY The product reaches a peak in terms of sales What is happening to NET CASH FLOW at this time? Describe the features of each stage of the cycle and how net cash flow is

D ECLINE The product has seen its day and is. What is happening going out of fashion Launched in 2001, but 12 years and 26 and replaced by new products. to NET CASH FLOW devices later, the generation-defining at this time? i. Pod range looks like it's about to fade into history without so much as a whimper. "I think all of us have known for some time that i. Pod is a declining What is happening to NET cash flow at business, " said Apple boss Tim Cook this time? earlier this week. Describe the features of each stage of the cycle and how net cash flow is

Task: Complete the table using your knowledge of the product life cycle and the notes available. How does each stage affect: Sales Revenue Expenditure Net cash flow C HALLENGE ( A GRADE): S TATE WHICH ELEMENTOF THE MARKETING MIX WOULD BE MOST IMPORTANTAT EACH STAGE – THEN EXPLAINWHY. Most– Describe the features of each stage of the cycle and how net cash flow is affected (B grade) Some – Explain how the marking mix might change during each stage (B/A

Q UICK Q UIZ 1. How many stages are there in the PLC?

Q UICK Q UIZ 2. Which stage of the PLC is MOST LIKELY to show a negative cashflow (less money coming in than going out) a. Maturity b. Introduction c. Decline d. Growth

Q UICK Q UIZ 3. Which stage of the PLC is a business mostly likely to be focusing on the promotion of the product a. Maturity b. Introduction c. Decline d. Growth

Q UICK Q UIZ 4. The duration of the PLC is the same for all products True or False

Q UICK Q UIZ 5. Which stage of the product life cycle is likely to have the strongest cash flow (more coming in than going out)

W HICH S TAGE? 6. Costs of manufacturing may still be high as investment is made, for example, in machinery or equipment.

W HICH S TAGE? 7. The product is in a highly competitive market.

W HICH S TAGE? 8. If a product is likely to damage the business’s reputation it may be withdrawn.

9. T HE FIRST STAGE OF THE PRODUCT LIFE CYCLE IS THE INTRODUCTION ?

10. P RODUCTS CAN ONLY STAY IN MATURITYFOR A LIMITED TIME?

11. A LL PRODUCTSMUST GO THROUGH EVERY STAGE OF THE PRODUCT LIFE CYCLE?

12. A T THE START OF THE PRODUCT LIFE CYCLE CASH WILL BE NEGATIVE?

13. C HANGING THE IMAGE OF A PRODUCT IS A FORM OF EXTENSIONSTRATEGY?

14. N O TWO LIFE CYCLES ARE LIKELY TO BE THE SAME?

15. T HE ACTIONSOF COMPETITORS ARE LIKELY TO AFFECT THE LENGTH OF THE STAGE OF THE PRODUCTLIFE CYCLE?

Product Life Cycle – Extension strategies Used when a product reaches maturity to try and extend its life and stop it going into decline Targeting new markets Revitalising the image of the product Rebranding Redesigning Repackaging These may be supported with a new promotional campaign Think of a product that is in need of an extension strategy. How would you extend its life cycle? 3. 1. 4 PRODUCT LIFE CYCLE

Extension strategy

EXTENSION STRATEGIES In order to keep the product on the market longer, company's have extension strategies. The most common ones are:

F IND NEW USES FOR THE PRODUCTS, FOR EXAMPLE

Finding new markets, for example

Develop a wider product range. For example

Develop a wider product range. For example

Aiming the product towards specific target markets, eg

Changing appearance or packaging, eg

Product Life Cycle Impact of extension strategies on other aspects of the business: Operations management Finance Increased costs for product development and promotion Marketing Research and development is required The 4 ps will need to be considered People Has the business the human resource skills required to develop the product 3. 1. 4 PRODUCT LIFE CYCLE

Product Life Cycle – question time Kit Kat 2 Finger: Two Finger Kit Kat is the UK's number one biscuit. The 2 Finger Kit Kat was launched in the 1930 s alongside the 4 Finger variant, and has remained a best–selling biscuit brand ever since. In the beginning, the 2 Finger Kit Kat was only produced as a milk variant, but is now available in Milk, Mint, Orange, Dark and Cookies and Cream. Annually we sell enough 2 Finger Kit Kat to go round the world more than one and a half times! Have a break with two crispy wafer fingers covered with milk chocolate, Kit Kat contains 107 Calories and no artificial colours, flavours or preservatives - a great lunchbox treat! (source: www. nestle. co. uk) 1. Look at figure 1. At what phase was Kit Kat in 1930? a) Phase 1 b) Phase 2 c) Phase 3 d) Phase 4 (1) 2. Look at figure 1. What is phase 2 called? a) Introduction b) Maturity c) Decline d) Growth (1) 3. Have Nestle made efficient use of extension strategies? Justify your answer. (5) 3. 1. 4 PRODUCT LIFE CYCLE

G ROUP A CTIVITY On A 3 paper draw a product life cycle diagram Choose one large organisation e. g. Apple and carry out some research into its product range Add your chosen business’ product range to the product life cycle diagram Do you think that the business has a balanced product portfolio? Justify your answer. 3. 1. 4 PRODUCT LIFE CYCLE

5 M INUTE T EST Draw a product life cycle What is an extension strategy? Why might an extension strategy impact on the finance department? End 3. 1. 4 PRODUCT LIFE CYCLE

P RODUCT P ORTFOLIO A NALYSIS Product portfolio analysis looks at the range of products and brands (product portfolio) that a firm has under its control. This type of analysis can help a firm identify where every single one of its products is positioned in the market. Perhaps the most common type of product portfolio analysis that firms use to analyse their product mix is the Boston Matrix. Richard Branson runs the Virgin Empire. How many different type of products does Virgin have under its control? 3. 1. 4 PRODUCT LIFE CYCLE

B OSTON P RODUCT M ATRIX This is a popular method for product portfolio analysis. It consists of four sections that allow a firm to assess its range of products as shown in the diagram below. 3. 1. 4 PRODUCT LIFE CYCLE

S TARS High market share in a high growth market These products enjoy increasing sales revenue (they equate to the growth stage of the product life cycle). However, because the market is growing other firms are likely to enter with similar products. There will be fierce competition between these firms to establish their own product. Characteristics can include: heavy promotional spending increased capital investment in order to increase capacity cash flow can often be negative at first 3. 1. 4 PRODUCT LIFE CYCLE

C ASH C OWS High market share in a low growth market These are established products (that have reached the maturity stage of the product life cycle). The profits made through these products can be used to finance other products such as rising stars. Firms will want to establish as many cash cows as possible. Characteristics can include: less competition from new firms entering the market firms can spend less on advertising. 3. 1. 4 PRODUCT LIFE CYCLE

P ROBLEM C HILDREN Low market share in a high growth market With growth in the market a product can be very successful if there is enough demand. However, some products are unsuccessful and the firm will have to decide whether to persevere with the product or discontinue it. A problem child (or question mark) will require a lot of attention, particularly in the form of marketing. This will cost the firm time and money. 3. 1. 4 PRODUCT LIFE CYCLE

D OGS Low market share in a low growth market Dogs are unlikely to be kept on by a business. With little growth in the market and little market share the company might see little scope for future profits. This does not always mean that the company will discontinue the product. If there is a market, then some products can still be profitable. 3. 1. 4 PRODUCT LIFE CYCLE

A product is called a cash cow because a firm can ‘milk’ the product to finance other areas of the business. When a firm looks at its range of products it is more likely to concentrate on cash cows and rising stars rather than dogs. It is hoped that a star can go on to become a cash cow but many stars eventually become dogs. Stars are often funded from cash cows. If sales of a problem child can be increased there is the opportunity for increased profits in the future and the product can be turned into a cash cow. 3. 1. 4 PRODUCT LIFE CYCLE In pairs Practice round: Take it in turns to pick one of these sentences and explain it to your partner. Whole class Select one person and one sentence. Can you talk about your allocated sentence for 60 seconds without hesitation or repetition?

A CTIVITY - B OSTON M ATRIX In small groups try to think of products that fall into the following categories : Stars – High market share in a high growth market Cash Cows – High market share in a low growth market Problem Children – Low market share in a high growth market Dogs – Low market share in a low growth market On A 3 paper produce a Boston Matrix showing products that fall under each heading. 3. 1. 4 PRODUCT LIFE CYCLE

Q UESTION TIME 1. The Boston Matrix categorises products in relation to market share and market growth. What name is given to a product that has high market share in a low growth market? a) Cash cow b) Rising star c) Problem child d) Dog (1) 2. Describe how the use of the Boston Matrix may benefit a business. (3) 3. Where would you place the Mc. Donald’s Big Mac a) On the Boston Matrix b) On a product life cycle? Justify your decisions. (6) 3. 1. 4 PRODUCT LIFE CYCLE

A CTIVITY - P RODUCT L IFE C YCLE Produce a product life cycle for a product of your choice. Use the internet to see if you can find the timeline of the product. Complete the time stages that the product went through during each stage of its lifetime: 1. Development 2. Introduction 3. Growth 4. Maturity 5. Decline 6. Extension strategy If you are stuck look at some of the following: video recorders or cassettes, the Sony Walkman, vinyl singles or LPs, Playstation or any other similar type of product. 3. 1. 4 PRODUCT LIFE CYCLE