Currently, all companies endeavor to search for new ways of making a product that will satisfy the needs and desires of consumers. Every product that a company decides to produce has its lifecycle through which it progresses through a series of phases/ stages. This series may be referred as product lifecycle. These phases include introduction, growth, maturity and decline (Philip Kotler, 2010).
In the growth market, there is a lot of public awareness about the product and sales start to rise considerably. As a result of this awareness, distributors accept the product easily since they are confident in sales of that product. Additionally, in the growth stage, sales start to grow and the company earns profits, and this helps it to cover the initial cost of the product. This is the best occasion for any company introducing a new product in the market. This is because, early in this phase, the company enjoys monopoly (Palmer, 2000). Additionally, at this stage the company reaps all the profits and sales on the new product introduced in the market. For example, during the time when Chrysler Company came up with an idea of minivan, they were in the most desirable position of having the only minivan introduced on the market and the company enjoyed monopoly. Unfortunately, this company did not uphold monopoly for a long time because, soon the competitors who included automobile manufactures presented various models in order to compete with this company. This means that, in this phase other companies notice the success of new product and they endeavor to present their own brands of products in order to get a share of the growing market. Despite the fact that profits and total sales continue to rise throughout this phase, they become divided among various manufacturers (Nash, 2000).
Additionally, in the growth market various companies such as car manufacturers, food and beverage producers, textile producers among others, can choose two tactics which include:
1. Skimming strategy
2. Penetration technology
Skimming strategy becomes applied when the company sells its product to limited customers at higher prices. For instance, at early times of production, textile manufacturers sell their products to few customers, who represent the narrow part of the company’s market. Later the company reduces the prices of its products. On the other hand, the company applies penetration strategy when selling its product to the large segment of the market at a lower price. For example, food and beverage companies usually chose this tactic when marketing their product. In the two strategies, the sales volume rise insensitively, due to demand which influence the cost recovery of product (Karl Moore, 2006).
At the end of growth phase, the maturity stage begins. At the end, of growth phase, market begins to become highly competitive and this tendency proceeds to the early period of the maturity phase of product life cycle. Additionally, various manufacturers continue to offer their products and the producers proceed with product differentiation process which begun in the growth phase (Antti Sääksvuori, 2008). This means that, at this stage, various manufacturers’ present variety of product models. These manufacturers produce a large number of product models.
At this stage, competition for customers is vicious due to the presence of many companies in the market. Although sales keep on rising at the beginning of maturity phase, the overwhelming competition from different competitors in the market causes profits of the business to peak at the end of growth phase and the start of maturity phase. These profits then decline in the remaining part of the maturity phase (Sameer Kumar, 2005). As a result of profits decline, the market becomes unattractive unlike in the growth stage where the market is extremely attractive.
In the growth phase, even the companies that are inefficient made money. However, at this stage, only the best companies and their products carry on in the maturity phase. Additionally, manufacturers start to drop out as they see profits turning to be losses. For example, despite the presence of stiff competition in the computer industry, progressive companies like Dell and Apple have managed to be leaders in the market. In the last part of maturity phase, even sales of the company start to fall, putting additional pressure on the other remaining manufacturers.
In addition, competition gets tough in this maturity market since various competitors endeavor to gain market share, which translates to profits margin. Also, the profits of the company go down during this phase since promotion costs rise and competitors proceed to cut prices of various products in order to attract more customers in the business. In this market, less efficient companies can be outdone by progressive companies since they cannot compete due to increased pressure on prices as well as drop out of the market. Maturity phase is the longest stage in the product life cycle. The sales of the company grow at a decreasing rate and then become stable, while intense competition and price wars occur. Also, the market reaches saturation and various producers start to leave the market because of poor margins (Kotler, 2009). For example, products like refrigerators demonstrate a product that has remained in the maturity phase of product lifecycle for many decades. Refrigerators will always remain in this stage until the time when new technology that satisfies the same need emerges.
In the maturity market, quality is the most vital part of this stage; it helps to progress in established market, where there is high competition. A good example to use in this stage is Facebook (www.facebook.com). When a social network like Facebook reached maturity phase, they started to introduce new options and designs to their website. Facebook has changed for about five times for the last three years. That is the main reason why this website has gained high market share in the internet market across the world. This company was aware of what the customers need from the company, and that is the main reason why the company became immensely successful in the internet market, since it satisfied the needs and preferences of different customers. Initially, this social network became used by a small group of people especially students but later, they included additional of news, information, photos, videos and many other operations developed it.
Later the company decided to design Facebook in a way that it can be produced in different languages. The aim of this development was to make it multinational so that people across the globe can use. Currently, the development of the website calls for adding new settings as a way of attracting more customers across the world. This example reveals how different companies work in a mature market, in order to balance the company’s cost recovery performance. This example provides a clear evidence to prove that, in the maturity phase, the main focus is on improving the quality of a product in orders to have a competitive advantage over other businesses in the market. At this stage, different manufacturers and producers concentrate on improving the quality of product by adding a new feature to attract customers (J. Paul Peter, 2010). Therefore, for any company to prosper, it must concentrate on the quality of its products so as to meet the needs and desires of the customers.
Additionally, in this maturity market, the sales volume of the product falls due to changes of customer’s lifestyle, routines as well as the new technologies in the market. These changes affect the sales volume of the company’s product, which manipulates the cost price. In other words, if the sales decrease, the value of the product also falls due to low demand. A clear example is black and white TVs. Currently, people do not buy black and white TVs because technology has brought many changes and people use colored TVs. Therefore, due to lack of demand for these TVs, the company does not produce them anymore since the demand is zero.
Discuss How Different Product Market Phases Affect a Company's Cost Recovery
In introduction stage, the product gets introduced to the market for sale. At this stage, many companies may not cover their initial cost of the product introduced to the market. This is because both promotion and distribution costs may be too high. Additionally, at this stage, the aim of the company is to increase brand loyalty and endeavor to increase demand.
During the introduction of a product, the company can apply “rapid skimming”, which refers, to the speed of the company to recover its development costs on the company’s product. According to this strategy the company can launch a new product in a high prices as well as high promotional level. If the company launches its product at high prices, this means that profits will be high, provided the product is accepted by consumers. If a company uses high promotion, this means that, there will be high market recognition. This strategy can work best in case the new product is not known in the market. On the other hand, the company can apply an opposite strategy during the launch of its product. This strategy refers to "slow skimming” this approach involves the process of releasing the new products at high prices and low promotional level. This high price gets intended to recover costs faster, while the costs get kept down by the low promotion level. This approach may work appropriately in the market that comprise of few key players or products in the market (Ralph E. Mason, 1994).
The company may also use rapid penetration in launching its products. This strategy entails the combination of low price and high promotion. This approach can work best in large markets where the customers are price-conscious, and there is stiff competition. Also, the company can use slow penetration strategy, this entails the combination of low price and low promotion. This approach can work best in the markets where price happen to be a problem, while the market was well-defined.
On the other hand, decline takes place when a product reaches the highest point in maturity, and both profits and sales start to drop drastically. In this phase, the number of competitors decreases and the customer preferences for this product decline. This stage proceeds until it reaches a point where the company cannot make any profit and the product category vanishes. Additionally, the income falls to a point where it becomes uneconomical for the company to continue producing the product. At decline, the company focuses on profitability and costs of the remaining models (O. C. Ferrell, 2010). Additionally, costs incurred in development, research and production, get cut to the minimum amount. After the costs get cut, the management of the company eliminates non-profitable products.
At this stage, the company minimizes the investments and it can also discontinue the product or sell the product to another company. Also, the company put costs of promotion minimal such that the promotion performed is only necessary to keep the product (Stark, 2011). At this stage, there is no wide distribution of the company’s product, but instead, the company focuses on profitable areas or markets while the unprofitable distribution channels get eliminated.