PRODUCT LIFE CYCLE (PLC)

Application: Investment Analysis, Strategy, Planning

Figure P.6: The typical S-curve depiction of a PLC

The Concept

This irritatingly well known concept suggests that the sales of individual products or services follow a pattern over a period of time, represented by the simple S-curve above. The horizontal axis is time and the vertical is total sales volume.

During the first phase of a product’s life, it is taught, profits are likely to be low because the firm is investing in creating a market, establishing new sales channels, and developing new manufacturing capability. It is suggested that the customers in this early stage are likely to be “early adopters”, who are interested in the new technology and open to new ideas. As their friends, relations, and business contacts see them using the new product, word-of-mouth spreads and demand increases. A moment then comes in the development of the product’s history when it becomes a reliable, familiar proposition and sales boom.

During this phase of the product’s history the suppliers are focused on sales. They are selling almost all they can manufacture as their offer takes off. Profits, which are initially low, improve as the supplier becomes more efficient and processes improve. Customers are an “early majority” and then a “late majority” as the offer penetrates the market.

Yet all markets are, ultimately, finite and there comes a point where every customer has bought their initial version of the product; the market has become “saturated” or “mature”. The growth in sales falls, sometimes quite rapidly. Initially the suppliers can be damaged because they may not accept that the good times are over. They may invest in massive advertising or sales programmes to stimulate demand. Eventually, though, a shake out in the market leaves a few successful suppliers. Once their position is established they can become very profitable, maintaining their position and gearing up to a market held at replacement levels. Some try to create “added value” from their offers, as mobile phone providers did by offering internet access and other services once Western consumers had bought their initial handset. Eventually even the most successful products are replaced by newer items. Examples are used to illustrate this supposed phenomenon, like the way VHS cassettes gave way to DVD and CDs gave way to music downloads. Yet, even in this dying stage, products can make money.

This concept suggests that the sales volume of individual products or services normally follows a similar pattern. Yet, although that idea has a strong hold on management thinking and executives can often be heard to talk about their product as, for instance, “mature” or a “cash cow”, it remains unproven and controversial (and completely muddle-headed) for individual products or services. In 1983, for instance, Professor Baker reported that around 80% of all new product launches in each year failed (Baker, M. J., 1983). For those many thousand products and their marketers, then, life was anything but a smooth S-curve. Several research projects have offered many different shaped patterns, including a cycle-recycle effect (in which sales did not decline at maturity but simply restarted a new cycle).

History, Context, Criticism, and Development

Unfortunately this concept is constantly muddled with other ideas like a sociological phenomenon called the diffusion of innovations (customers are “early adopters” etc.) or with the Boston Matrix (people talk about their offer being “mature” or a “cash cow”) and with the sales curve of a “product class” (see market maturity). It is routinely taught as fact, frequently misunderstood, and sometimes causes real damage. It is important to unpick the confusion and nonsense that has built up around this idea before trying to use it.

The origin of this concept has been attributed to Joel Dean, an academic who published an article around the theme in 1950 (Dean, J., 1950) and Conrad Jones (a consultant from Booze Allen) who presented at the 39th conference of the American Marketing Association in 1957. Jones said that his work was based on extensive study of client projects (300 “client reports” and 600 written sources). At the conference, he presented the now familiar S-curve with profit margins tracking the phases of product growth (see Muha, W.F., 1985). In December 1962 an economist, Raymond Vernon, presented at an American Marketing Association conference, called “Emerging concepts in marketing” (Vernon, R., 1962). There is little doubt that this kick-started the interest in product life cycles and industry maturity amongst marketing specialists.

Even one of the defining articles of the time, by Professor Theodore Levitt, called “Exploit the product life cycle” (Levitt, T. 1965) did not distinguish between the life of individual products or services and the trends in product classes. He described the phases of the life cycle as they have been subsequently taught and recommended strategies for each phase. His examples, though, are a product group (nylon) and brands (Jell-O and Scotch tape) which, as he describes in the article, were developed into product classes by their owners. Although he uses the phrase “product life cycle” throughout, there is no evidence in his article that the sales volumes of individual products are always S-curves.

It is seldom taught that, after nearly ten years of assertion that the PLC was an observable phenomenon, several credible pieces of work in the early 1970s debunked it. The HBR article by two planners from JWT (Dhalla, N.K. and Yuspeh, S., 1976) rehearsed the arguments well. They pointed out that most advocates of the proposition had little empirical data and that there were credible research projects that had failed to find a correlation. Their article contains several data driven models which show no S-curve at all in individual products or services. Mankind looks for patterns to confirm its prejudices and there seem to be several writers who were looking for S-curves in product data because they were keen to promote marketing as a science.

By contrast, one academic writer who specialized in product strategy pointed out that individual products or services have different shapes to their sales pattern. Some establish a niche early and continue in that pattern (a straight line), others are cyclical or seasonal, and others decline fast after an initial high profile launch. He identified at least five common patterns which were radically different to the PLC and suggested that, in practice, marketers use this concept “as an abstraction”. In other words it is theoretical nonsense of dubious practical use (Hise, R.T., 1977).

Voices and Further Reading

• Vernon, R., “International investment and international trade in the product cycle”. Quarterly Journal of Economics, 1962.
• Levitt, T., “Exploit the product life cycle”. Harvard Business Review, November–December 1965.
• “… a recent survey I took of some such executives found none who used the concept in any strategic way whatever, and pitifully few who used it in any kind of tactical way. It has remained – as have so many fascinating theories in economics, physics and sex – a remarkably durable but almost totally unemployable piece of professional baggage whose presence in the rhetoric of professional discussions adds a much coveted but apparently unattainable legitimacy to the idea that marketing management is somehow a profession. There is, further-more, a persistent feeling that the life cycle concept adds luster and believability to the insentient claim in certain circles that marketing is close to being some sort of science.” Levitt, T., ibid.
• Kotler, P., “Competitive strategies for new product marketing over the life cycle.” Management Science, December 1965.
• Wells, L.T., “A product life cycle for international trade?” Journal of Marketing, July 1968.
• Dhalla, N.K. and Yuspeh, S., “Forget the product life cycle concept!” Harvard Business Review, January–February 1976.
• “Most writers present the PLC concept in qualitative terms … without any empirical backing … it is not possible to validate the model at any of these levels of aggregation.” Dhalla and Yuspeh, ibid.
• Doyle, P., “The realities of the product life cycle”. Quarterly Review of Marketing, Summer 1976.
• “… definitional problems need to be clarified in collecting such evidence. First, one must distinguish between product classes (e.g. cigarettes), product form (e.g. filter cigarettes) and brand (e.g. Embassy) … there is often little similarity between cycles at different levels of aggregation.” Doyle, ibid.
• Swan, J.E. and Rink, D.R., “Fitting market strategy to varying product life cycles”. Business Horizons. January–February 1982.
• “… reliance on the classical product life cycle for marketing decisions can be misleading. Our research shows that there are eleven different product life cycles, each one having different implications for marketing decisions.” Swan and Rink, ibid.
• Muha, W.F., “The product life cycle concept: origin and early antecedents”. CHARM conference paper, 1985.
• Wood, L., “The end of the product life cycle? Education says goodbye to an old friend”. Journal of Marketing Management, 2, 1990.
• “With the broadening of the marketing concept over time, weaknesses have become increasingly evident in attempting to universally fit the application of PLC theory to the specific areas of high-tech products, and consumer durables, and the additional areas of industrial products, services and Not For Profits. … Marketing is an adaptive concept, yet it would appear that in attempting to adapt PLC theory to its broadening base, we as marketers, may have been guilty of PLC myopia.” Wood, ibid.
• Spears, N.E. and Germain, R., “A review of the product life cycle and diffusion of innovation: current and historical perspectives.” Paper presented at the 7th Marketing History conference proceedings, Vol. VII, 1995.

Things You Might Like to Consider

The PLC and the Black Nectars

If the life cycle of individual products or services is an S-curve, and decline is inevitable, then it should be seen in the sales history of long-term, popular products. The history of two famous, and remarkably successful, products demonstrates that this is not straightforward. Figures P.7 and P.8 show the early history of the 20th century’s most successful marketing phenomenon: Coca-Cola (source: Pendergrast, 1993). Sales are measured in gallons of syrup sold because, in the early days, the drink was sold to consumers in soda fountains more than bottles.

The rationale for the drink had been to find something simply pleasurable during an alcohol prohibition phase in Atlanta; but by the 1920s (nearly forty years after its invention) that had changed. There were many reasons to think that the decline in sales (see graph below) was because the product was “mature”. The government was beginning to respond to constant negative publicity about the effects of the drink and investigate its contents (because there were constant allegations that it contained cocaine). Costly legal actions were being considered, which would add to problems over ownership of the patent. There were cheap competitors and imitators. In addition, global events (the First World War, for example) were affecting the optimism of the nation. “Classic marketing training” (had it existed then) would clearly prompt marketers of the time to consider whether this decades-old product was starting its decline phase and should be replaced. (When the leaders of the firm attempted that at the end of the 20th century with “New Coke”, of course, one of the most remarkable examples of consumer antagonism followed.)

Yet, the second graph clearly demonstrates how idiotic it would be to follow classic marketing training with this wonderful product. Just thirty years later the company was selling billions of gallons of syrup and the so-called PLC blip vanished in the rounding. The company’s leaders had a passion for their drink and invested in some of the most aggressive and focused marketing possible. They used: segmentation, research, extensive advertising, PR, and thought leadership in the half century before the so-called “marketing concept” phase of thinking.

Figure P.7: The first few decades of Coca-Cola sales

Figure P.8: The first half century of Coca-Cola sales

Figure P.9 shows 150 years of sales history for one of the world’s other favourite black drinks: Guinness. It demonstrates the complexity behind marketing strategies and the actions that marketers have to take in order to grow their revenues. Firstly, it can clearly be seen that sales have been climbing for 150 years, defying the simple PLC concept. The brand has clearly played a part in the endurance of this long-term success. Like the other brands in Tables B1 and B2, it has developed equity which has attracted generations of customers into its franchise. Yet, those responsible for the drink have also modernized its nature and packaging. The volume changes between “Porter”, “Stout”, and “draught in cans” show the investment in innovation and marketing behind this successful product and hint at both the complexity and subtlety needed to succeed in product or service marketing. For instance, Arthur Guinness started selling the dark beer porter in 1778 and the first Guinness beers to use the term were Single Stout and Double Stout in the 1840s. Guinness brewed their last porter in 1974.

Figure P.9: The first two centuries of Guinness sales

The sound bites and “key leanings” that are so prevalent in many marketing books are not enough; and the simple assertion of an S-curve PLC for individual products or services is dangerous.

Source: Diageo; used with permission.