Glamor Economics

Chapter 64

Chapter 9 Section 4 Does the product also have "birth, old age, sickness and death" - product life cycle

"Product Life Cycle Theory" was invented in 1966 by Professor Raymond of Harvard University?Vernon first proposed it in his book "International Investment and International Trade in the Product Cycle".The product life cycle refers to the market life of a product, that is, the whole process from the time a product enters the market until it is eliminated by the market.

The theory holds that the life cycle of a product refers to its marketing life in the market.Just as a person goes through the stages of "birth, growth, maturity, and decline", correspondingly, a product also goes through the stages of "introduction (introduction), growth, maturity, and decline".However, the time and process of this cycle are different at different technical levels, and there are often large differences between different technical levels.This difference reflects the difference in the competitive position of the same product in different countries' markets, which determines the changes in international trade and international investment.Throughout the product life cycle, the changes in its sales and profits are generally shown in the following curves.

It is worth noting that different products often have different life cycles.The life cycle of fashion is often only a few months, while the life cycle of a car can reach 100 years.The shape of the curve of the life cycle of various products is also different.Some products grow rapidly as soon as they enter the market, and quickly skip the introduction period; some products may skip the growth period and directly enter the mature period; some products do not grow after the introduction period, and directly enter the recession period.

At present, with the rapid development of science and technology and the intensification of market competition, all companies are trying to catch up with similar companies, which makes the upgrading of products continue to accelerate, and its notable feature is that the life cycle of products is constantly shortening.Especially in high-tech industries such as microelectronics, electronic computers and new materials, the development speed of new products and new processes has reached an unprecedented level. Technological innovation in the IT industry takes 18 months as a cycle. Every 18 months, the integration level and computing speed of chips will double, while the previous chip prices will drop by half.We take the product life cycle of the mobile phone market as an example to illustrate.

1.Introductory period.Generally, the sales volume of products in this process is relatively small, and the growth rate is relatively slow.As an electronic product, a new mobile phone needs to distinguish two situations after entering the market.One is a new product with innovative technology, and certain features appear for the first time. In terms of marketing strategy, it is necessary to establish the market "leader" position as soon as possible.In general, innovative new products have a high chance of success.The other is a product that belongs to the homogenization of the market. When faced with many products on the market, you should pay more attention to the positioning of the price and the corresponding promotion strategy during the introduction period.

2.growing period.During this period, the product was recognized by the market and sales began to grow rapidly.Of course, if the product is not recognized by the market, it may immediately enter the recession period, that is, it becomes a failed "short-lived product".In the growth period, although competitors have also discovered this "fat meat", because the innovative technology of mobile phones is difficult to follow up immediately, leading manufacturers can still maintain the price and try their best to prolong this stage.Once a competitive product appears, the competitor is likely to improve the shortcomings of the original innovation, and at the same time will hit the market with a price war.In the face of this situation, as the original leader, it can only further stimulate market share and increase sales through price cuts.

3.Maturity period.During this period, the sales volume of the product has reached a certain level and will slow down or even stop growing.At this time, consumers have a comprehensive understanding of it, and its sales channels have basically been maximized. Therefore, this period should be the most relaxed stage for manufacturers.Although the price has been adjusted to be relatively low, the profit is still considerable due to the large sales volume.The maturity period of mobile phones is often the longest life stage of the product, and manufacturers will attract new consumers through various changes or combinations.For example, after many products enter the mature stage, they will focus on promoting the selling points that were ignored or forgotten by consumers in order to achieve an increase in sales.At this moment, due to the continuous increase of competing products, the market may have signs of overproduction, which also indicates that this product may begin to enter a period of decline.

4.Recession.During this period, the downward trend in product sales could not be stopped.The reasons are basically obsolete technology, changing consumer interests and increased competition.However, it should be pointed out that sometimes manufacturers cannot clearly understand the recession, or cannot accept this fact, and continue to invest a lot of money in products that are already in recession. The result can only be "more investment and more losses", eventually resulting in sunk costs .Especially for fast-moving consumer goods such as mobile phones, the frequency of price cuts is fast. The slower the clearance during the recession, the lower the retail price will be, and the more likely it will lead to losses.So the best way at this time is to quickly reduce the price and clear the goods. I would rather lose some money and finish it as soon as possible.

Although the product life cycle model provides a lot of valuable information, but at present this theory is an auxiliary reference tool for marketing decision-making, rather than the main decision-making tool.This is because the curve of the product life cycle is full of many variables, and the success of product sales is related to various external factors.For example, when mobile phone sales decline, the reason may be that the number of sales outlets covered is not enough.If you rashly judge that the mobile phone has entered a recession period at this time, and take the action of reducing the price to clear the warehouse, it may lead to a sharp drop in profits or even a loss.

Therefore, in addition to using the product life cycle theory, decision makers also need to fully consider various factors that affect product sales in order to form an accurate and comprehensive judgment.

[links to related words]

The rapid skimming strategy is to launch new products with high prices and high promotional expenses.Implementing a high price strategy can maximize the profit per unit of sales and recover the investment as soon as possible; high promotional expenses can quickly establish popularity and occupy the market.

Slow skimming strategy Introduce new products with high prices and low promotional expenses, with the purpose of obtaining more profits with the lowest possible expenses.The conditions for implementing this strategy are: the market size is small, the product has a certain reputation, the target customers are willing to pay high prices, and the threat of potential competition is not great.

Rapid Penetration Strategy Launch new products at low prices and high promotional expenses.The purpose is to preemptively enter the market with the fastest speed and obtain the largest possible market share.Then, with the expansion of sales volume and output, the unit cost is reduced and economies of scale are achieved.

Slow Penetration Strategy Introduce new products at low prices and low promotional costs.Low prices can expand sales, and low promotion costs can reduce marketing costs and increase profits.

(End of this chapter)