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This is a report on a ideal product life cycle and its deviations from reality using the example of Volkswagen

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Table of Contents
Page 1. Introduction 2. The ideal product life cycle 2.1 Definition 2.2 Stages and characteristics 2.2.1 Market introduction stage 2.2.2 Growth stage 2.2.3 Maturity stage 2.2.4 Saturation and decline stage 3. Discrepancy between idealism and reality 3.1 Differences in product selection 3.2 Differences in duration 4. Conclusion 5. List of graphs 6. Reference section 1 1 1 2 3 3 4 4 5 5 6 7 8 8

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2. Introduction The following report contains information about an ideal product life cycle and its characteristics unlike reality influences. It is an important part of managing marketing aspects and is classified as an economic basis of the instrumental marketing concept. Going back to the first models, Vernon, an American economist built up the theory that every product which is supplied to consumers changes in regard to the sales market and the productions function by passing different stages of lifetime (Kruber, 2008). Products such as other ephemeral objects or creatures take up a subordinate role to the cycle of life which remains to the process of life and death. They all go through similar stages of growth and decline until they disappear from the stage of life. Specific reasons for such a behavior of products include changes in population and hence resulting changes in demand. Other reasons to consider can be technological innovation and changes in social values. These circumstances are the explanation of why especially products have a limited life expectancy and pass through different stages during their lifetime (Meffert, 2000). Especially in fields of innovation and brand management it could be useful for companies to know how much time and how many sales their new development takes up. The product life cycle exists, consciously or unconsciously aware of its importance, as assistant for the business management. Due to the fact that analyzing und coordinating new as well as old brands and products helps to use market opportunities it becomes more and more essential for innovative companies to work with specialized in-depth analyses.

3. The ideal product life cycle

3.1. Definition The phrase product life cycle consists of two principle constituents. Conceived in a general phrase the word life cycle expresses recurrent sequences involving specific characteristics. In contrast products are explicit known as a couple of synchronized properties which have the objective of generating a special costumer oriented value (Homburg & Krohmer, 2009). The main statement referring to a product life cycle includes that every distributed product has well defined but different stages of lifetime with various levels of selling and earnings (Homburg & Krohmer, 2009). In this content the missing word ideal stands for an exemplary approach of a life cycle which can only be reached from several products under restrictive conditions. Already the market launch of a product symbolizes the birth of product life cycle.

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3.2. Stages and characteristics Working with an ideal presentation of the product life cycle the following chart shows two differently colored curves. Embedded into four main stages which express the ongoing lifetime process of a product these two graphs stand for an ideal run of functions of profit and sales growing and decreasing over time. (Homburg & Krohmer, 2009).

Chart : 1 Model of an ideal product life cycle

*Source: According to Caridi, 2010.

According to the curve progression the phase adjustment of an ideal life cycle is based predominantly on empirical studies with only fractional reference to mathematical characteristics. The model is based on various principles like market influences and changes in demand and supply which hampers a mathematical analysis in its basics (Meffert, 2000). A further reason to comprehend the classification of the stages and the involved curve progressions is the theory of innovative adaption of new products and thus resultant an explicit demand behavior (Meffert, 2000). In the following the various stages of an ideal life cycle become described by main aspects. Thereby the main focus will be on ideal cyclic patterns which characterize these phases.

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3.2.1 Market introduction stage The first phase of the product life cycle is characterized in that a new, innovative product is pressed into the market. The thus resultant sales curve is due to some curiosity sales and to first achievements of enormous marketing activities. Another point to consider is the important significance of the first stage because already at the beginning of a product lifecycle it gets decided whether the innovative strategy is going to failure or not (Meffert, 2000). According to Beyer (2004) the introduction time necessitates a great effort in advertising expenditures and market investment to guarantee an all-embracing publicity. By analyzing the profit curve in the chart above there is in evidence the first time without any profit. This circumstance is linked up with the already mentioned high expenditures and will not finish until the sales rise above the so called break-even-point, the point where total cost equal total revenues and the transition to the growth stage takes place (Meffert, 2000). Important to mention in this context is that being a pioneer at the market advantages a monopoly position where it could be easy to generate enormous market shares while concentrating on only a few competitors (Homburg & Krohmer, 2009). As a typical example of the first stage Caridi (2010) mentioned the hybrid car which gobbled up an enormous amount of money due to research and development expenditures without generating any profits.

3.2.2 Growth stage Continuing the lifetime process during the second stage there is a noticeable increase in demand evoked by increasing marketing expenditures for instance in advertisement and public relations but also by mouth-to-mouth-propaganda of satisfied costumers (Meffert, 2000) . In relation to a rise in product demand a disproportionately high amount of sales increases is characteristic of the ongoing adaptive process until the turning point of the sales curve is reached. Apart from these positive effects this phase also contains some opposed negative influences on the life cycle of one´s product. For instance there is still an uncertainty about the definition of market potentials due to possible price reductions which result from using synergistic effects and other economies of scale (Homburg & Krohmer, 2009). Another important fact to consider corresponds to an increasing number of competitors which run into the market. The business competitors start to differentiate in terms of technological improvements, quality and price and therefore win new costumers (Meffert, 2000). The main strategy to prevent aggressive competitive conduct includes selective advertisement and clear forms of differentiation (Beyer, 2004).

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3.2.3 Maturity stage Fundamental aspects according to the maturity stage of a product lifetime refer to continuing enlargement of the market and accompanying decrease of sales (Meffert 2000). In the course of an incremental diffusion process and still increasing inventions from competitors the business competition rises up to the highest level of the entire product life cycle (Meffert 2000). In spite of a decrease in market attractiveness there are still some latecomers entering the market without any experiences chasing the goal of using undiscovered market opportunities. Meanwhile it has to ascertain that at this stage of an ideal product life cycle the number of product variants rises to fulfill differentiated costumer desires (Homburg & Krohmer, 2009). In conclusion the maturity stage terminates when the sales curve ends to grow. In addition to that it has to be mentioned that the real border cannot be identified clearly because business cycle influences can be suggestive of stagnation even if the product demand as self expands (Meffer, 2000). Giving a representative example of the stage there has to be mentioned the laptop computer. The highest level of sales, comparable low costs and only a few competitors at the laptop market make the laptop a classic example (Caridi, 2010).

3.2.4 Saturation and decline stage The maturity stage is followed by a time of saturation declination. According to Meffert (2000) there are two basic characteristics describing the process section. On the one hand side the sales curve reaches its maximum amplitude and a hence resultant negative marginal rate of sales which is seen as downward falling sales curve at the turning point. On the other side the fact that a significant bound between the surrounding stages, especially to the final decline stage, is not existent. Referring to this point in time Homburg and Krohmer (2009) mentioned that during this phase of the product life cycle an increasing elimination of former competitors’ proceeds and furthermore the customer loyalty is higher than it has ever been before. After the product has passed the final border to the decline stage it ushers a last degeneration phase before the product is eliminated from the market. The basic reason for a strong decrease in sales and profit at this point is possibility for consumers to satisfy their needs with new and cheaper products which generate the same customer value as the previous model did. This fact arises according to Meffert (2000) by the reason of economic-political grounds but also of technological improvement or statutory changes in basic social conditions. For instance the tax relief of low-emission cars in the early 1980tees which seals the decline stage for older cars which were not equipped with a catalytic converter as it is nowadays (Meffert 2000).

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3.3. Discrepancy between idealism and reality The product life cycle explained above has some essential defects. The ideal description does not display real circumstances on the market. Reason for that are shortcomings according to the definition of a general admitted product life cycle and various inaccuracies (Beyer, 2004). In the following the focus on the criticism concentrates on the divergences with a view to product selections and discrepancies in duration of different product life cycles.

3.3.1 Differences in product selection According to Beyer (2004) a detailed deferral of products is not possible while working with the ideal product life cycle. He mentioned that different curves and phases can occur by relating to various parts of a product. Thus a deviation of curves compared to the original product life cycle model refers to whether consumer goods or industrial goods are meant. Also the question of substitute goods or luxury goods, individual brands or product lines and tangible goods or services plays a role in regard to different curve progressions (Beyer 2004). The graphs below in contrast show another influencing factor of the product life cycle curve. They compare social time-based needs represented by different fashion levels.

Chart 2: Specific turnover developments in regard to different product trends

*Source: According to Caridi, 2010.

For instance products with partial changes in consumer acceptance over time have other curves than products which are related to constantly ups and downs of demand (Caridi, 2010). A popular example of such a development can be fashion trends like the actually increasing demand for petticoats which had their main sales in the early 1950tees. Hence curve progressions of different product types can neither claim idealism nor homogeneity.

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3.3.2 Differences in duration. Another point to consider is the question about the end time of a product life cycle. Homburg and Krohmer (2009) assume that every product life cycle, ideal or real, has a limited life expectancy. A part from that the ideal model admits the false conclusion that sales curves are independent of business decisions and seems to be an exogenous parameter. This statement is contradictory to the basic approach of marketing activities which are based on strategies of influencing markets and sales (Homburg & Krohmer, 2009). In addition to that the following graphs express different marketing strategies for enlarging product life expectancies.

Chart 3: Specific turnover developments in regard to different product strategies

*Source: According to Caridi, 2010.

The first pattern (a) indicates a fast growth of sales followed by strict decrease into a constant level. According to Caridi (2010) kitchen appliances are an accurate example for a continuous lifetime in the short run. In the long run this pattern gravitates into a stadium with declining sales evoked by new developed competitive products. The second curve (b) stands for an obsolete product which tends to reach its decline stage. While the first cycle is going to end a second one appears relaunching the product. At this time producers intent to elongate the life cycle by improvements and additional characteristics of the product (Beyer, 2004). Especially carmakers relaunch certain models by intensifying their advertisement expenditures and offerings. The third alternative (c) to extend the duration of a product life cycle, according to Caridi (2010), contains discovering and rediscovering product functions and uses. For example Kevlar experienced lots of booms over time due to a multifunctional use of the product.

All in all the product life cycle can become extended by various strategies but a continuous and constant growth or zero growth is impossible due to technological progress.

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4. Conclusion Concluding the remarks about an ideal product life cycle and its differences to reality the conceptual idea of the product life cycle has no explicit significance (Meffert, 2000). Its significance only refers to a demonstration of diffusion processes during the time products spend at the market. In addition to that the model only supports by developing marketing strategies about behavioral patterns and goals (Homburg & Krohmer, 2009). Nevertheless the product life cycle model provides the incentive for a structured debate about sales problems. In this context the product lifecycle management is a continuative way for handling questions referring to strategic measures especially on high technological and high innovative markets (Meffert, 2000). Closing the report it has to be mentioned that the product life cycle model is based on an enormous simplification of real market conditions and causes fatal errors if these restrictive conditions doesn’t receive sufficient consideration (Homburg & Krohmer, 2009). Thus the model offers valuable clues about how and when to redesign the product line but it also extends the risk to failure.

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Reference Section

Beyer, H.-T. (2004). Online Lehrbuch: Marktprozesse. Retrieved on June 11, 2011 from http://www.economics.phil.uni-erlangen.de/bwl/lehrbuch/kap2/prodzy/prodzy.pdf

Caridi, A. (2010). What is the product life cycle? And why do I care as a manager? Retrieved on June 12, 2011 from http://www.adamcaridi.com/

Homburg, C. & Krohmer, H (2009). Marketingmanagement: Strategie-InstrumenteUmsetzung-Unternehmensführung. Wiesbaden: Gabler Verlag.

Kruber, K.-P. (2008). Theoretische Grundlagen des internationalen Handels. Retrieved on June 10, 2011 from http://www.bpb.de/publikationen/YDP302,1,0,Theoretische_Grundlagen_des_ internationalen_Handels.html#footer Meffert, H. (2000). Marketing: Grundlagen marktorientierter Unternehmensführung. Wiesbaden: Gabler Verlag.

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List of graphs

Graph No.

Title

Page No.

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Model of an ideal product life cycle

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2

Specific turnover developments in regard to different product trends

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3

Specific turnover developments in regard to different product strategies

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