[MUSIC] Any product of service goes through a natural life cycle. That cycle could be short, some are fashioned clothing, for example, or much longer, airplane engines, or televisions. The life cycle starts, develops, matures, becomes very mature, and then declines. Of course, it may be that the particular product of service starts but goes nowhere. And disappears from the market very quickly costing the seller lots of money. Think about some examples from yesterday and even today. Where has the typewriter gone? It was superseded by word processors but they, in turn, were quickly over taken by PCs and then laptops. Laptops are now having to compete with tablets. Video Recorders and Players for home use were once all the fashion but were overtaken by DVD players. There are those who would say, DVDs have certainly passed their sell by date with online services now replacing them. Plastic records were replaced by CDs, and they too are rapidly being replaced by downloads and other online services. Conventionally, it's suggested that there are five stages in a product life cycle. Introduction, Growth, Maturity, Saturation, and then unfortunately, Decline. The global dimension has added to the significance of the product life cycle. Competitors can now enter markets more quickly once they've found a way in and gain a foothold, and then sometimes almost a stranglehold. The international context has caused what we're perhaps seen as stable and predictable product life cycles to change dramatically. With often shorter life cycles and more dangers lurking in the introduction and growth stages, making new products and services more vulnerable. For these reasons alone, it would be worth investigating the theory, nature, and application of the product life cycle. Another important reason for doing so, is that it helps an organization to understand the impact on profits and cash flow at any one stage in the cycle. On a chart, the five stages can be represented against the horizontal access for time, and a vertical access for money. Remember, the stages are introduction, growth, maturity, saturation, and decline. During the introduction stage, sales may be very low, but will start to increase during the growth stage, stabilizing during the maturity stage, but tending to start to decline towards the end of saturation period, and then declining completely. Following the sales patterns, with low sales during the introduction stage, profits may actually be losses. And because of expenses, will of course always be lower than sales. But by the decline stage, profits fall away and may turn into losses. The cash flow follows a similar pattern with negative cash flows during the introduction stage and even the growth stage sometimes. But they're after increasing although lagging behind profits because of cash having to be spent in advance, and costumers paying at some point in the future. By the decline stage, cash flow is decreasing rapidly. Marketing strategies play a major role in helping organizations to generate better sales figures in each of the stages of the life cycle, with consequences for sales, profits, and cash flows. As long ago as 1970, Bruce Henderson, from the Boston Consulting Group, developed what is now a much used and much valued approach to categorizing products and services in different stages of the life cycle. This approach is formally called the Boston Consulting Group Matrix, and the Boston Box for short. It relates the rate of market growth to relative market share. During the introduction stage, as sales take off but market share is still low, the product or service may be seen as a question mark as its future is still uncertain. As the question mark product or service starts to grow and gain market share, it becomes a star. If market share growth continues by the maturity stage, the star becomes a cash cow with high profits and strong cash flow. When products and services are declining, they may be seen as being dogs with no additional sales growth and low market share. Of course, increasing sales and market share growth rates will have an impact on the product life cycle. In particular, to avoid declining sales, actions should be taken before the end of the saturation stage. In 1987, Igor Ansolf, developed his customer growth matrix, sometimes called Ansoff's Growth Matrix. This matrix suggests that an organization's attempts to grow are linked to whether it markets new or existing products, in new or existing markets. The analysis, which we look at in detail later, generates a series of potential strategies which take account of the positions of a product or service on the product life cycle at any one time, and its position within the Boston Box. The strategies revolve around first, market penetration, selling more of existing products or services into existing markets. A second strategy is market development, selling existing products or services into new markets. A third approach, a third strategy is product development, selling new products into existing markets. The fourth and final strategy is diversification, selling new products or services into new markets. These three models have proved useful over a long period of time to organizations as they seek to compete, survive, and prosper in the turbulent environment, that is the modern business environment. Let's investigate further, starting with a reading concerning the product life cycle. [MUSIC]
