During several decades, the product life cycle model has been very popular in management. Companies adopt this concept as a core of business operations and product management. The product-and-service mix is a significant force in corporate growth. Profit performance and market adjustment have as their fulcrum new product development, which has been called the life blood of a company. Corporate profitability indicates that the growth industries -electronics, chemicals, drugs — have been new-product oriented adopted a product life cycle model. New products contribute substantially to profitable sales (Agarwal, 1997). The necessity of adding new products that will yield profits to sustain corporate growth is clear. Products also level out seasonal impacts, spread risks, use talents, capitalize on tax advantages, and replace obsolescent items. Business success depends on producing the right product at the right time. New-product development is risky, for market opportunity is couched in uncertainty and instability, and competitive system and the unpredictability of customer reaction increases the risk. in spite of benefits and opportunities proposed by this model, recent years there is a growing number of research studies proving its limitations and weaknesses for modern business.
The large layer of literature supports the product life cycle (PLC) model and underlines its effectiveness and opportunities for business. Products are defined broadly to include both physical products and services. Products are perceived as means of problem solving for both buyers and sellers. The discussion relates to both consumer and industrial goods. Product-line management involves the addition of new products to the line, and the deletion or modification of current products. Product diversification (horizontal, vertical, or heterogeneous), may be the result of internal product policies or mergers (Lee and Stone 1994).
Reasons for diversification vary from spreading risks to using by-products and increasing profits.Product policies and strategies may be offensive or defensive, convergent or divergent. Companies may adopt a followership or leadership posture, and may choose a strategy of segmentation or product, differentiation (Lee and Stone 1994). By differentiating products they try to bend demand to meet their supply and so insure a niche in the marketplace. Each of the phases of the product-development process (conceptualization, exploration, development, market preparation, commercialization, and review), is considered. Product development is seen as one of the core foundations of corporate planning. Its success or failure shapes corporate destiny. Because of this, particular attention is given to a discussion of new products, their adoption and diffusion processes, the product life cycle, and new-product failures (Agarwal, 1997).
The product life cycle model is perceived positively by Carree and Thurik (2000), Gillespie and Alden (1989), Greenstein and Wade (1999). These authors underline that typically, products have a monopoly position for a perioda degenerative monopoly position. Eventually competitors will develop competing and even improved products. The pricing executive must decide whether to charge relatively high or low initial prices, and the marketing consequences and related strategies are quite different in each situation. Obviously, regardless of economic models, it is difficult to establish an optimum price because demand and costs change over time (Lee and Stone 1994). In their Lee and Stone 1994 analyze product innovation process and its impact on life cycle.
They come to conclusion that the attention should settle on current profit maximization rather than on the long-run maximization; the whole life cycle of a product and the total product line, rather than a single item, must be considered in pricing; and price must be considered from the perspective of the total marketing mix. Where products are relatively homogeneous; several large firms constitute a significant part of the market; and buyers are well informed, then estimates of buyer reaction become a significant aspect of the pricing picture. So do competitive reactions that may be ferreted out by the use of marketing intelligence. This reasoning process, utilizing subjective probability estimates, can provide decision makers with good guides for contemplated price changes (Agarwal, 1997). Gillespie and Alden (1989) identify effectiveness of PLC in export operations and its impact on international companies. They conclude that companies with OLC schemes are more competitive on the global scale and global market.
PLC supporters give a special attention to importance of channels of distribution and marketing mix. Distribution channels are the vehicles for matching companies with customers. Masurel and Montfort (2006) analyze the effectiveness of PLC among professional Service Firms. They establish the arrangements and paths for the flow of product and title to ultimate users. They move products and information to markets and provide the funnel for the feedback of information to the producer. As networks of marketing agencies, they constitute a system-a loose but formal coalition of independent entities linked together to distribute products and services. This research study concludes that distribution channels are critical components of the marketing mix (Lee and Stone 1994). As the links between companies and markets, they can impede or foster the effectiveness of the rest of the marketing mix (Kassab, 2003).
Distribution channels cover a wide range of situations. At one end are found the complicated linkage of manufacturers and their branches, agents and brokers, other wholesalers, and retailers for the movement of certain consumer goods. At the other is the direct distribution of heavy machinery. Between lie a variety of channel assortments. Which one works best depends on the company and its products and markets at a certain time. Distribution channels are essential components of economic system. Carree and Thurik (2000) analyze positive impact of PLC on American tire industry. They find that the efficient movement of goods and competition both depend on PLC. Nevertheless, as economists often assume, the channels do not perform cost-less activities. Using resources to sort supply and match it with demand, they try to bring both activities into balance. Through channels, companies organize supply and markets and endeavor to develop their own best opportunities.
The product life-cycle concept emphasizes the familiar pattern of product sales volume growing slowly, then more rapidly, reaching a peak, tapering off, and declining. For different products, the length of the cycle, the duration of each phase, and the exact shape of the curve will vary. Eventually, however, sales decline because of competitors, new products, satisfaction of needs, and changing wants. Products now seem to mature more rapidly, and their life cycles are getting shorter. This means that product lines will have to be audited more carefully and strategies directed to capitalize on the life-cycle situation (Gillespie and Alden 1989). Firms too often only pay attention to current problems, neglecting life-cycle considerations and the impact of marketing strategies. They can deter sales declines, speed introductions, and stimulate growth phases through advertising, personal selling, and pricing. Profit cycles differ from sales cycles. Greenstein and Wade (1998) apply PLC to commercial mainframe computer market and conclude that at the introductory phase, products may be unprofitable; during the period of most rapid growth, profits reach their peak; and as competition sets in, even though sales may be increasing, profits decline and are eventually squeezed out.
In contrast to these views, some researchers criticize PLC and underline its limitations for modern business. Many projects get into trouble because of the piecemeal approach taken in executing them. The people who select the project are not the people who design the deliverable. Those who create the project plans are not the individuals who are responsible for executing them. Those charged with operations and maintenance of the deliverable in the postproject stage generally did not participate in any aspect of its development. Saaksvnori and Ommonen (2008) cite an example of weaknesses and limitations posed by poor PLC. This reality was revealed in a study of 113 project professionals whom I asked to describe their degree of involvement in five distinct phases of the project life cycle: concept, planning, execution, closeout, and operations and maintenance. Thirty-two percent of the project managers who responded reported that they most typically worked on only two of the five phases. Only 20 percent worked on all five phases. Furthermore, only 29 percent reported involvement in the concept phase—meaning that they were responsible for carrying out efforts in which they had no inputs during the formative early stage. These data suggest situations that are natural breeding grounds of discontinuity (Saaksvnori and Ommonen 2008).
Similar ideas are expressed by Anderson and French (2004) who find that there is no integrating force to ensure that the project sticks to its goals. In fact, there are many forces of disintegration, with different actors pursuing their own agenda as the deliverable makes its way through the life cycle. The consequences of this are dramatic. For one thing, companies can be assured that what comes out of the pipeline is not what was initially put into it. The danger here is that what comes out is no longer geared to the customers’ wants and needs. In addition, it is likely that the basic design underlying the deliverable will become a patchwork as different actors have the opportunity to tweak it to their own requirements. So even though companies set out to design a horse, companies wind up with a camel (Anderson and French 2004). Ultimately, problems of discontinuity translate into shifting baselines, which in turn yield cost and schedule overruns. Effective project management requires a life cycle approach to running the project. Efforts must be taken to ensure that the project is seen in its entirety at all times (Stark, 2004). The implications of such an outlook are substantial: deliverables are now designed to be operable and maintainable, requirements remain steady regardless of life cycle stage, and key actors who work on the project throughout its life develop a commitment to the project in its entirety, not just to pieces of it. There are many disintegrative forces at work, including personnel replacement, low-bid-focused procurement systems, and the dynamism of the environment (Samuel et al 2005).
Anderson and French (2004) underline that failure rates of new products cause management increasing concern. No one general answer can be given because the reasons vary. Following in order were product defects, higher-than-expected production and development costs, poor timing, price competition, insufficient marketing effort, inadequate sales force, and weakness in distribution. Another study found that “Experience of major companies indicates that most products fail because the idea or its timing was wrong and not because the company lacked the knowledge on how to develop and commercialize the market” (Samuel et al 2005). Both the preponderance of marketing reasons and the need for better marketing research are apparent. Products imply investments of significant proportions; they must be reassessed on the basis of future needs. Their retirement and replacement should be planned in terms of impact on the total organization, particularly on the fixed investments involved in manufacturing. It is difficult to assess a product’s position and relative worth in a company’s total line. Conceptually the assessment presents numerous problems. Some evaluations are made on the basis of net profit generated (Samuel et al 2005).
Taking into account facts and practical examples, it is possible to say that the product life cycle model is effective and beneficial for companies. Carefully planned diversification strategies can lead to more rapid growth, better use of resources, capitalization on the results of research and development, and better fulfillment of corporate objectives. There are limitations and weaknesses of the model, but it does not mean that this model is ineffective for the majority of firms. In order to succeed, product-diversification programs must be related to marketing objectives. The maintenance of profits and sales positions requires changes in product-and-service mixes — sometimes drastic changes (Samuel et al 2005). A company’s product line, therefore, is far from stable, even in a five- or ten-year period. The life cycle of products dictates changes, and products in developmental phases must have sufficient market capability to overcome the loss of those in stages of decline. Multiproduct firms must have a mix that is growing in total potential and profits. Although product change is rapid and inevitable, products must solve problems for sellers long enough to justify the risks of research, development, and commercialization (Kassab, 2003).
Hormozi et al (2000) pay a special attention to termination phase and its impact on PLC. Timing is therefore significant in new-product acceptance. A product introduced ahead of the public’s “willingness to accept it” may be rejected. However, once the customer climate is appropriate, the new products may make good headway. But this is difficult to gauge. It is impossible to predict the length of time required for profitable innovation to occur, and “even the most seasoned marketing executives are missing their guesses by months and even years on these questions.” judging whether a new product is a success is at best difficult. It varies with the kind of product in question, such as a high-style consumer good versus an industrial product. One study was done in which a product’s success was measured in terms of how much the overall competitive share of the markets increased (Stark, 2004).
The latter factor is crucial; products developed too soon or too late will fail. Companies faced with high expenses and new-product risks may adopt different strategies from those that are not. For example, they may introduce a new product in one geographic area at a time rather than on a national basis. This limits the risk. Mistakes are made and corrected on a local rather than national basis, and the funds generated from sales in one area can be used to finance expansion. Effective product-development programs often point to the need for a separate and formal organization unit for new product activities (Kaiser et al 2001). These departments handle the “care and feeding” of new products until they reach a stage of commercialization. Responsibility for new-product development follows an established path — from the laboratory to a research and-development committee and to a new-product department.
Product planning requires a careful estimation of costs, profits, and timing. At one end of the scale, management may choose to push the product through the distribution channels to the market. It may do so by undertaking expensive advertising campaigns (Masurel and Montfort 2000). This campaign may be bolstered by a hard selling effort designed to get wholesalers and retailers to promote the product. At the other extreme, the manufacturer may hope to pull the product through the channels to the market by cultivating the ultimate consumers. For example, manufacturers may advertise to their customer’s customer, thereby creating effective demand, and force wholesalers and retailers to handle the product. Among the factors that govern the advertising and sales programs that should be selected are the degree of newness of the product, the existing degree of competition, the ease of entry of competitors who offer similar products, the brand loyalty of customers, the company image, and the corporate niche in the marketplace. Also, management must decide whether it wishes to skim the market or penetrate it deeply (Gillespie and Alden 1989).
In sum, there is no universally superior method of organizing new-product activity. Management thinking has recently focused on the top level responsibility for new-product functions. The main tendency identified in literature is that old layer of literature approves benefits and opportunities of PLC while modern literature criticizes this model. Thus, all researchers agree that the high level of organizational placement reflects the critical nature of new-product development and some of its attendant activities, such as the determination of newproduct goals and the scrutinizing of acquisitions and mergers. The major purposes of the department are to facilitate the creation of new products and to insure corporate survival and growth. Product-planning managers perform crucial activities in very competitive markets. Products that contain fundamental innovations are likely to have less accurate market predictions than products that contain adaptive innovations. It is not the degree of technological newness, but newness in the sense of customer perception and changing consumption habits that is significant. Some concepts developed previously are particularly relevant to product adoption. Included are fashion cycles, new-product categories, innovators and early adopters, acceptance and rejection of change, and stages of market development.
References
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