How To Advertise: An Analysis of Contemporary Advertising (part 15)

Product Life Cycles

by

Charles Lamson

Marketers theorize that just as humans pass through stages in life from infancy to death, products (and especially product categories) also pass through a product life cycle. A product's position within the life cycle influences the target market selected and the kind of advertising used. There are four major stages in the product life cycle: introduction, growth, maturity, and decline.

When a company introduces a new product category, nobody knows about it. By using market segmentation, though, the company may try to identify those prospects who are known to be early adopters---willing to try new things---and begin promoting the new category directly to them. The idea is to stimulate primary demand---consumer demand for the whole product category, not just the company's own brand.

During the introductory (pioneering) phase of any new product category, the company incurs considerable costs for educating customers, building widespread dealer distribution, and encouraging demand. It must spend significant advertising sums at this stage to establish a position as a market leader and to gain a large share of market before the growth stage begins.

When cellular telephones were introduced in the late 1980s, advertisers had to first create enough consumer demand to pull the product through the channels of distribution (called pull strategy). Advertising communications educated consumers about the new product and its category, explaining what cellular phones are, how they work, and the rewards of owning one. Sales promotion efforts aimed at the retail trade (called push strategy) encouraged distributors and dealers to stock, display, and advertise the new products.

When sales volume begins to rise rapidly, the product enters the growth stage.  This period is characterized by rapid market expansion as more and more customers stimulated by mass advertising and word of mouth, make their first, second, and third purchases. Competitors jump into the market, but the company that established the early leadership position reaps the biggest rewards. As a percentage of total sales, advertising expenditures should decrease, and individual firms will realize their first substantial profits.

During the early 1990s, the demand for cellular phones exploded, and category sales quadrupled every year. Many competitors suddenly appeared. With increased production and competition, prices started to fall, which brought even more people into the market. By 2005, 70 percent of all U.S. families owned cell phones.

In the maturity stage, the markeplace becomes saturated with competing products and the number of new customers dwindles, so industry sales reach a plateau. Competition intensifies and profits diminish. Companies increase their promotional efforts but emphasize selective demand to impress customers with the subtle advantages of their particular brand. At this stage, companies increase sales only at the expense of competitors (conquest sales). The strategies of market segmentation, product positioning, and price promotion become more important during this shakeout period as weak companies fall by the wayside and those remaining fight for small increases in market share. By the mid-1990s, for example, cell phones that once sold for $1,500 were suddenly advertised regularly for $100 to $200. Ads emphasized features and low prices, and the product became a staple of discount merchandisers. Today, of course, one can get a cell phone for free just by signing up for the service.

Late in the maturity stage, companies may have to scramble to extend the product's life cycle. Without innovation or marketing support, name brands eventually see their sales erode. If the advertised brand has no perceived advantage, people will buy whatever's cheapest or most convenient. Professor Brian Wansink, who directs the Food and Brand Lab at Cornell University, suggests that the reason many old brands die is less for life cycle reasons and more for marketing neglect. He points out that aging brands often pack plenty of brand equity. The challenge for marketers is to determine which brands can be revitalized and then decide how to do it. But with today's high price tag on introducing new products (often $100 million or more) revitalization should be the strategy of choice whenever possible. Marketers may try to find new users for the brand, develop new uses for the product, change the size of packages, design new labels, improve quality, or use promotion to increase frequency of use.

If they are not revitalized, products will finally enter the decline stage because of obsolescence, new technology, or changing consumer tastes. At this point, companies may cease all promotion and phase the products out quickly, as in the case of record turntables and LP albums, or let them fade slowly with minimal advertising, like most sheer hosiery brands.

*SOURCE: CONTEMPORARY ADVERTISING 11TH ED., 2008, WILLIAM F. ARENS, MICHAEL F. WEIGOLD, CHRISTIAN ARENS, PGS. 188-190*

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