Thursday 16 October 2014

PRODUCT LIFE CYCLE IN RETAIL INDUSTRY

In Retail Industry the buying and merchandising team classifies their products into categories based on sales and product life cycle. This gives them the edge to price the products and stay ahead of their competitors in assortment planning and pricing. Before we get into product classification, we will discuss the various phases a product goes through right from launch to phase out.

1. Launch
2. Growth
3. Maturity
4. Decline

Prior to launch, all the products will go through a product development lifecycle and procurement process which we will discuss in detail in separate blogs.

1. Launch

This is the first Phase a product goes through in Retail market and as the name suggests it is the launch of the product. In this phase the product is new to the market and it is still untested. This is the phase where the product needs huge advertising and marketing push through hoardings, commercials and test samples. Hence usually newly launched products are priced a bit towards the higher side to accommodate these additional costs. The main goal for a company in this phase is to create a positive vibe for the product in the market and attract customer through awareness. At times due to high marketing cost, the company can incur loses which can only be recovered from the other phases but this phase is a zero compromise phase for every product. So we are left with no option other than to invest in marketing at proportionate level expecting future returns.

2. Growth

The second phase sees the growth of the product and the benefits of the marketing activities carried out during the launch. We can observe the market response and demand for the product in the market. This will help us evaluate whether the product will be a hit among its consumers and sustain the competitor's pressure or not and if yes then how long. Marketing for the product does continue but on a lesser scale and price for the product is revised based on its demand in the market. A sudden drop in price during this phase will impact the product's sales and image among its consumers. Usually pricing will see a marginal drop or remain static from its launch price.
This phase also sees increase in gross margin for the product due to drop in marketing cost and production cost. If the product has a successful launch then the growth phase will see the product peak in its market share and have a better reach to its consumers.

3. Maturity

As the name suggests, when a product enters this phase, it is already well establish and enjoys a good market share but it does come with its own challenges. By now a handsome volume of your customers have used the product and given their feedback based on which the sales would have peaked. The product's sales volume will be in its peak. The faster the product reaches maturity the longer the product can sustain in the market because the product can enjoy the market share up till competition heats up.
But this stage is also full of challenges like :
- Clones being introduced in the market by competitors at lower price slabs. The company has to reduce prices to compete with the competitors and retain its customers in this case
- With more competitors offering similar product will force us to reduce the price of the product leading to drop in price
Due to heavy competition from competitors the product will lose the market share, so we need to differentiate the product form the competitors through improvisations and making the product better. This usually leads to a partial first phase again i.e. through marketing and re-launching the product with better features to maintain the market share gained and to stay one step above the competition.
If the product is not re-launched then the product will hit Saturation in market share and hit the decline phase

4. Decline

With increase in competition and better products being launched in the market for the same price, the product will eventually get into its decline phase. The continuity of manufacturing the product will be dependent on the available market share and cost of production. Retailers will try to penetrate lower end markets and new markets by selling the products for lower price. Retailers provide discounts on the product to liquidate the existing stocks and ultimately the product will be phased out by the retailers from the market.