PRODUCT LIFE CYCLE (PLC) : CONDITIONS AND STRATEGIES IN DIFFERENT PHASES.
This phase marks the launch of the product in a market. Organizationally this phase is characterized by high operational costs arising out of inefficient production levels or bottlenecks ,high learning time ,unwillingness of trade to deal in the product or demand of higher margins or extended credit terms ,and advertising. During this phase firmâ€™s requirements for cash is very high as all expenses have to be met .Generally the suppliers media and others are not willing to give credit .Hence all payments have to be paid for in cash. The environment of the firm is characterized by customers who lack or have low awareness of the product.
The marketing task for the pioneer firm is to stimulate demand for the new products and also to reduce the break-even time .or this reason ,initially ,the firm offers just or limited product version. It offers tangible benefits and reasons for customers switching over from their existing products to the new products
The firms may choose its introduction strategy from any of the four illustrated described below
Introduction/Market Entry Strategy of New Products
This strategy of high price and high promotion effectively works only when the customer awareness for the product is not very high, and among those who are aware, willingness to pay any price to possess or buy it is high. This strategy also works when the market size of the product is large and the threat from competition is imminent. Most consumer electronics and non-durables could be classified in this group Thatâ€™s the reason why most consumers electronics like TV, VCR , music system, video games ,etc .are initially priced high and than gradually reduced to maintain the market share. Since the threat for competition is real, the pioneer firm always try to skim the cream off the market as it will help to reduce the firmâ€™s break-even-time and hence more profits.
This strategy is based on the assumption that the firm has sufficient time to recover its pre-launch expenses ..This happens when either the technology being used by the firm is highly sophisticated and competition will have to invest substantial resources to get this technology. Further ,since most competitors may not have the required quantum of resources, competition may be limited to just one or two large companies .Another environmental characteristic supporting this strategy is that the market size for the product is limited and those who are aware are willing to pay any price to buy it .Many of the industrial products ,more specifically renewable energy resources or laser technology or petrochemical may fall in this category.
Rapid Penetration Strategy
The strategy of rapid penetration is based on the same assumptions and environmental conditions as the one mentioned under the rapid skimming strategy .The only difference between rapid skimming and penetration is the firmâ€™s long-term objectives .If the objectives is market share and profit maximization in the long run and the markets characterized by intensive competition of other entry barriers, a firm may choose to enter the market with this strategy. Japanese firms adopted this strategy to launch their products in North America and Europe.
The leading example of Indian firms having adopted this strategy is one of Nirma and T-series audio cassette. Both these firms have successfully used high promotionâ€”low price strategy to grow in the price sensitive Indian market.
Slow Penetration Strategy
This strategy delivers results when the threat from competition is minimal, market size is large ,market predominantly price sensitive and majority of the market is familiar with the product. The firmâ€™s objectives is to maximize sales or profits in the long run.
Thus ,some of the considerations at the introduction stage revolve around pricing and promotion levels. A firm offers only a limited version of the product at this stage .Consider the example of Maruti. Initially the firm, Maruti Udyog, offered only one version of Suzuki 800 car and was priced not at the common manâ€™s level .The firm offered tangible benefits of fuel efficiency and safety over the existing products .The firmâ€™s initial production levels could not meet the demand generated in the market and we all know how people made money on their Suzuki allotment letters.