Running header: PRODUCT LIFE CYCLE

Reaching a Consensus: The Product Life Cycle

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The purpose of this memo is to select the proper marketing objective and strategies necessary to phase out the 17-inch monitors, which are an old product, to open up the inventory space necessary for the new 22-inch monitor. The 22-inch monitor is a popular model and has overshadowed consumer desire for the 17-inch monitor. The Board of Directors determined a team was necessary to investigate the methods of the product life cycle (PLC) to better understand what objective to select during the decline phase of the PLC for a product.

To: Senior Management, Our Company

From: Product Investigative Team

Subject: Product Life Cycle and 17-inch Monitors

Date: February 9, 2009

To Whom It May Concern:

Our team has investigated the product life cycle and determined that the 17-inch monitors, an older product, are entering in the Decline Phase of the Project Life Cycle, or PLC. To better understand why the team selected the move toward reducing the price of the older monitor to improve the visibility of the newer monitor, we must look at how the 17-inch monitor travelled through the marketplace during its life cycle. The product life cycle contains five phases that include the (1) development stage, (2) introduction stage, (3) growth stage, (4) maturity stage, and (5) decline stage. Each stage provides the insight into consumer demand during each stage, the cost of the product at each stage, and competitor entry and exit during each stage.

The product is under development, or the company is creating the product, during the development stage of the product life cycle. Costs increase quickly because of the overhead costs of producing the product, such as research and development, or R&D. The higher cost of development and investment causes companies to attempt to move the product quickly “to market” where the item reaches consumers and profits from sales increase. One problem is the second phase of the product life cycle, the introduction phase.

The new product is provided for consumers during the introduction stage of the PLC. “In this stage, as compared to other stages, profits are negative or low because of the low sales and high distribution and promotion expenses” (Armstrong and Kotler, 2005, p. 278). This stage is also characterized by high promotional costs needed to attract consumers to try the product. The high cost of development and marketing also dictates that the price for the new product is high, thus not attracting many buyers for the basic product. Satisfaction at the introduction stage leads to the next stage in the PLC, the growth stage.

During the growth stage the sales of the product will rise rapidly, given the product satisfies the market and the consumers in said market. “The early adopters will continue to buy, and later buyers will start following their lead, especially if they hear favorable word of mouth” (p. 281). Competitors enter the market during this stage because of the opportunity for increasing revenue by entering the marketplace. During this stage new features or promotions are provided for the consumer to expand the amount of sales and expand market growth over competitors. The cost of the product is still high during this stage or might drop slightly; however, the expense of advertising and promotion during this stage demands the higher cost of the product to consumers to continue meeting inventory and supply demands. The next step for the product is the maturity stage.

“At some point, a product’s sales growth will slow down, and the product will enter a maturity stage” that “lasts longer than the previous stages, and it poses strong challenges to marketing management” (p. 281). A saturation of the product with the market occurs, causing many firms to decrease the price of the product to remain competitive within the market. Advertising and sales increase during the maturity stage, as does the amount spent by the company on R&D to provide a new, improved version of the product. Decreases in profits occur during this stage, causing many competitors to leave the market, thus allowing for a stage with only “well-established competitors” (p. 281). The company should focus on attracting different market segments during this stage (modifying the market), changing the features available in the product (also known as modifying the product), and modifying the market mix by reducing prices to attract new consumers and attract consumers from the competition. Aggressive sales promotions, such as coupons and contests, can also attract a new market segment and increase profits for the company. The sales will eventually decline, leading to the decline stage because of such decline in sales.

A reduction in product demand and sales occurs either slowly or rapidly, depending on the type of product provided to consumers, thus causing the product to enter the decline stage. “Sales decline for many reasons, including technological advances, shifts in consumer tastes, and increased competition,” according to Armstrong and Kotler (2005, p. 285). Many hidden costs exist because of the weak demand of the product during the decline stage, such as an increase in management time continuing to market the product to different market segments. Management can choose to continue to market the product (also known as maintaining the product), harvesting the product by reducing overhead costs such as R&D in the hopes of continued sales of the product, or “phase out weak items” (p. 286). The company should not continue to market the product aggressively because of the higher cost not recouped by the company because of the decrease in demand.

With a proper understanding of the different stages of the product life cycle, the 17-inch monitor is in the decline stage since the release of the 22-inch monitor. The company should not continue to market the 17-inch monitor to consumers but should focus on retaining a small inventory of the product to consumers loyal to the product. The company should reduce the price of the product to move the inventory and increase inventory space for the new monitors. The company could also offer rebates and discounts to government consumers for purchasing a large quantity of the 17-inch monitors to move the inventory out of the warehouses of distributors. This consensus was reached by all members of management and we urge senior management to implement this plan to sell most of the remaining 17-inch monitors to focus on the new product.

In conclusion, the team thanks senior management for the opportunity to provide a solid solution to the problem of declining 17-inch monitor sales.

Sincerely,

Product Investigative Team Managers

References

Armstrong, G., & Kotler, P. (2005). Marketing: An Introduction (7th Ed.). Upper Saddle River, NJ: Pearson Education, Inc.