Marketing defines a product as being a source of benefits. The product is more than just a psychical item. Brand, packaging, experience and unique characteristics play a significant role.
Marketers need to be aware of the changing needs and wants of the consumers, so that the benefits can be adjusted to meet those needs. And this is the reason for market research. But we also need to know which products need to be developed, which ones improved and which removed from the market.
The product life cycle is an interesting concept for marketers. Products have a life cycle which begins with introduction, going through growth, reaching maturing, going into decline and eventually become obsolete.
In the introduction stage the product sale grow slowly, and the profits are either small or negative because of the heavy promotion and production investments.
In the growing stage there rapid increase in case should be expected, because the customers are now aware of the product. The profits will grow, but competitors will also enter the market and there is a threat substitutes will emerge very rapidly.
In the maturity stage, the product is well known and well established. The competition would by now enter the market and the product update and improvement would be required.
In the decline phrase the product loose the market share and profitability quickly.
We should make decisions, whether we should support the product and invest into the promotion or simply allow it to disappear. It can be very unprofitable to market and promote a product which is declining, but sometimes it it can reappear or be reborn in a different market.
We can therefore assume that all products will experience a life cycle. The timescales will, however, differ from one product to another. Some products may become obsolete with a matter of months, and some last for years or never retire.
The product lifestyle theories have also number of flaws and was criticised. For example it assumes that the cycle goes only one way and once product decline it will end its life. But this may not be true for some items, for example fashion clothing which may reappear after number of years.
Therefore this model will be only useful to see what is happening, but we might be very cautious with it on predicting on what is going to happened. This is mainly because it is not possible to predict on how the maturity stage will continue. It is therefore difficult to make decisions, especially when decrease in sale may not be caused by the product declining, but temporary fall due to economic situation for example.
It is useful however, in the environments where there is many different products produced to graph the product life cycle for each product in its portfolio. This would give the product a long-term overview, but the issue with future predictions still remain.
Boston Consulting Group developed a matrix that help companies with the decision making.
Stars
Stars are products with rapid growth and dominant share of the market. Usually, the costs of fighting off the competition and keeping the growth mean that the product is actually absorbing more money than its generating. But it is hoped that it will become a market leader the bring the desired profits. The dilemma is, whether the market is going to grow or whether it will go down. I can be difficult to determine, whether the Star will bring back the investment, but a business that does not do it will end up with just a Dog.
Cash Cows
Cash cows are the former Stars. They already have the dominant share of the market and are now in the maturity phrase and consequently have a low growth. The Cash Cow is generating cash which can be than used to finance the Stars. These products have steady sales and generate much of the firms profits.
Dogs
Dogs have a low growth and low market share. The product may still be profitable, but the organisation need to think whether it can use it to generate something that would be even more profitable.
Question mark
Question mark has a small share of growth market and the business need to work out the way of making the product a Star. This could mean finding out why the market share is low and developing strategies to increase it. This could involve bigger promotion campaign or product could be upgraded to fit the consumers needs better. Market research would play a crucial role in these decisions which could prove to be a difficult field of research. But it can be proven long therm, because adapting product to meet customers wants may become cheaper that heavy investments into the product promotions.
The above matrix allow to set some important questions that marketers could consider:
1) Which products should be discontinued? Here we are looking at the product profits and the impact it has on other products purchased.
2) Which products need more intense promotions? Promoting the wrong product can be extremely expensive,
3) What new products could be developed and at what cost?
We need to be aware of certain risks associated with this approach. Mainly, that we can not always assume that if we invest into the promotion of the product, it will increase its market share. Additionally, trying to increase market share with lower prices may become unprofitable to the business. We also have to watch for competitors activities as even if we think our Star is growing rapidly, the competitors products may be growing even faster.
However, the matrix has become an useful tool for marketers to analyse product portfolio.
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