Question

Explain the first two stages of product life cycle.

Answer 1

1. Introduction Stage: During this stage, the product is born. It may be entirely a new product or a new version of some basic product. The firm informs the market about the existence and features of the product. Competition is virtually absent, market is limited, prices are relatively high and little is known about the product innovation. Growth in sales volume is at a low rate due to lack of knowledge on the part of consumers and limited distribution. Prices are usually high because of small scale of production and heavy promotional expenditure. Thus, the introduction stage is characterised by high costs, low sales volume, limited distribution and high prices. This stage is very risky because a high percentage of new products fail during this period.
   The following strategies may be employed to introduce the product successfully :
   1. Proper advertisement and publicity of the product, e.g., money-back guarantee may be offered to persuade people try the product.
   2. Attractive gifts to customers as an 'introductory offer'.
   3. Selective distribution and attractive discount to dealers.
   4. Removing technical and other deficiencies in the product.
   5. Skimming the cream pricing policy, i.e., higher price to recover heavy promotional costs during the initial period.
2. Growth Stage: In this stage, the demand and sales grow rapidly, distribution is widened, competition increases and prices fall. Promotional focus shifts from "buy my product" to "buy my brand". The firm expands sales by increasing market share in the existing markets and by entry into new markets. The promotional expenses remain high but fall as a percentage of sales turnover. Therefore, profits rise. In some cases, major improvements may take place in the product.
   The following strategies may be adopted during the growth stage:
   1. Heavy advertising to create brand image and to stimulate sales.
   2. Expanding distribution channels to make the product available wherever demanded.
   3. Introducing new versions of the product to cater to the needs of different types of customers.
   4. Keeping the price at competitive levels.
   5. Greater emphasis on customer service.