Anytime a company develops a new product or service, it needs to be aware that the product and/or service will not last forever. This is important to recognize in the early stages of development so that a firm can maximize their profits during the product’s life cycle. Albeit, no company can accurately predict the duration of a product or service, any product/service progresses through four distinct phases. Each phase is associated with different costs, profits and risks. Collectively, these phases are known as the Product Life Cycle (PLC) and are classified into: Introduction, Growth, Maturation, and Decline.
The introduction phase is the first phase for all new businesses, products, and services. Any new idea, new business or service cannot escape this phase. Sales are generally extremely low and slow to takeoff. Marketing costs are required to create customer awareness, interest, and introducing the product/service into various distribution channels are is quite high. Profits tend to be negative or low because of the low volume of sales. Lastly, competitors are very few in number since the firm introducing the product/service is typically an innovator.
Businesses, products, and services in the growth stage experience a significant increase in sales. The increase in sales is due to viral marketing, an increase in the number of competitors who now have their own version of the product/service, and promotion of the product. Costs are declining on a per unit basis because the scale economies are in production. Profits rise significantly because of the increase in sales and the decrease in unit cost. However, competition increases and firms rely on product differentiation to gain competitive advantage. The MP3 player is currently in this life stage.
The Business plan on Market Segmentation Products Service
Market Segmentation This document prepared and presented by Business Resource Software, Inc. Market Segmentation The purpose for segmenting a market is to allow your marketing / sales program to focus on the subset of prospects that are 'most likely' to purchase your offering. If done properly this will help to insure the highest return for your marketing / sales expenditures. Depending on whether ...
Sales continue to grow during the early part of maturity but at a much slower pace and eventually peak. The maturity phase is classically the longest phase in the PLC and most marketing decisions are made during this phase. Costs continue to rise because of market saturation and intense competition. Profits will begin to ebb because of the combination of slowing sales and increasing costs.
The decline of a product/service is inevitable and although it can be delayed, eventually all products/services will begin to deteriorate. Sales plummet and costs continue to rise as large sums of money may still be spent on promotion aimed at price concessions or continuing to attract a specific market segment. Profits are decline and marginal competitors flee the market, leaving only those competitors who are entrenched in the market and have significant market shares.
Stages of Production
Every product/service is subjected to the Law of Diminishing Returns; it is an inescapable fate. The Law of Diminishing Returns states that at some point, equal increases in variable inputs will result in smaller and smaller increases in output. The Law of Diminishing returns typically sets in at the growth stage and marginal product begins to decline. However, the Growth and Maturation phases are also the relevant ranges of production and profit can be expected to be generated in these phases. The MP3 player is clearly in the growth cycle and has already succumbed to the Law of Diminishing Returns.
The average fixed cost has declined for MP3 players since the demanded quantity has increasingly climbed. However, the average variable cost and the average total cost will increase as demand increases. The average variable cost includes things such as labor, plastics, widgets, and gadgets required to build the MP3 player. This makes perfect sense because an increase in demand requires more units to be produced, hence more labor, plastics, etc. The average total cost will also increase if average variable costs increase since it includes a sum of average fixed costs and average variable costs. The marginal cost to produce one additional MP3 player will continue to increase while the marginal revenue will decrease but total revenues will increase in the growth phase. The market is not fully saturated at this point and profit maximization has not occurred. Profit maximization will not occur until marginal revenue = marginal cost, this typically does not occur until the start of the maturity phase.
The Term Paper on Product life cycle and its stages
In today’s world, where market is unpredictable, strategies play crucial role in defending a firm’s product position. “The main reason why companies must continually develop new products is because products have life cycle”, (Bittel, 1980). Just as operation managers must be prepared to develop new products, they must also be prepared to develop strategies for both new and ...
Product Life Cycle
The introduction of the MP3 player a few years ago spawned a debate regarding sharing music and the music industry felt (still feels) severely threatened by this technology. However, this has not impacted the market or the consumer, in fact, there has been an influx of MP3 competitors on the market recently. Significant marketing costs are incurred (just take a look at TV commercials offering MP3 players) and increased distribution channels are used. The MP3 player is clearly still in growth phase of the product life cycle. Sales are continuing to increase and new competitors are still entering the market; however, with each new competitor entering the market, substantial diversification has occurred. MP3 players now come with AM/FM radios, CDs, extra memory, etc. Firms are beginning to focus on developing marketing strategies for specific individual segments such as the business traveler versus the college student.
Average revenue is continuing to increase and is expected to increase through the end of the growth phase although marginal revenue began to decrease the minute the product entered the growth phase. Total revenue will climb through maturity and then begin to decline. The marginal product and marginal revenue follow a similar path as do average product and average revenue. Very little profit is made in the decline phase so MP3 players are at the perfect point in their production phase and product life cycles to make a profit.
The Term Paper on Life Cycle Cost Analysis
Life-cycle cost analysis (LCCA) is a method for assessing the total cost of facility ownership. It takes into account all costs of acquiring, owning, and disposing of a building or building system. LCCA is especially useful when project alternatives that fulfill the same performance requirements, but differ with respect to initial costs and operating costs, have to be compared in order to select ...
Nolan/Norton Technology Cost
The Nolan Nortan Technology Cost Cycle (NNTC) is very similar to the MP3 player’s Average total cost during the product life cycle. Technology, regardless of the type or implementation, is still an overhead cost that will be part of the average total cost, which helps explain why the technology costs per unit of output are extremely high at the beginning of the Introduction Phase and begin to decline as the product moves into the Growth cycle. The NNTC remains level throughout the Growth cycle and the part of the Maturity cycle. During the Growth cycle for MP3 players, the costs are generally lower per unit of output because the company is producing in economies of scale and an increase in sales.
So can technology drive down costs? Yes, if properly deployed, it certainly can. However, technology will not drive down costs in the first two phases of the Product Life Cycle so this will not impact MP3 players until they enter the Maturity phase. . It is important to note that the addition of technology will not change the shape of any marginal product graph, it can, however, increase the height, which in turn could extend the lifetime of the product. Lastly, the NNTC is inversely proportional to the Total Revenue of any product or service.