What Is Product Life Cycle Theory?

Product life cycle (PLC) is the market life of a product, that is, the entire process from the beginning of a new product to the market until it is eliminated by the market. Vernon believes that product life refers to marketing life in the market. Products, like human life, have to undergo cycles of formation, growth, maturity, and decline. As far as products are concerned, it is going to go through a stage of development, introduction, growth, maturity, and decline. And this cycle is different in countries with different technological levels. The time and process of occurrence are different. There is a large gap and time difference during this period. It is this time difference that reflects the technological gap between different countries. It reflects The differences in the competitive position of the same product in the markets of different countries have determined the changes in international trade and international investment. The theory focuses on analyzing the foundations of international trade from the perspectives of technological innovation, technological progress, and technological diffusion, dynamicizing comparative interests in international trade, and studying the transmission of product export advantages between different countries.

Product Life Cycle Theory

1.Curve judgment method

2, analogy

3. Empirical judgment method (inference method of family penetration rate)

4. Sales

(1)

Product-based

I. Strategic objectives for different life cycle stages of the product

2. Logistics requirements and countermeasures at different life cycle stages of products

Introduction period

During the product introduction stage, new products are put on the market. At this time, customers do not know about the product. Except for a few customers who are pursuing novelty, almost no one actually buys the product. However, the product has a high profit margin and uncertain potential demand. Big. At this time, the company's strategic goals are mainly focused on the "attracting customers" stage. The company spends a lot of time and energy on the promotion of the terminal, and the advertising investment is very large. In terms of logistics demand, since the initial goal of introducing new products is to gain a foothold in the market, it is very important to be able to satisfy customers' availability of inventory at any time. In addition, customer purchases reflect small batches, high frequency, and timely delivery. Once out of stock, it is possible to offset the results achieved by the marketing strategy. Therefore, at this stage, the choice of logistics mode requires a high degree of product availability and flexibility. When formulating a logistics support plan for new products, it must be considered that manufacturers should have the ability to provide product replenishment quickly and accurately.

In addition, because it is a market development stage, it is difficult to accurately predict the actual market demand. Therefore, for small and unstable purchases of customers, it is fatal for a company to maintain a large amount of inventory and inventory, so it is in the new product introduction stage. How to balance the need to fully meet customer needs while avoiding high-cost logistics support is a problem that managers need to solve. When they first entered the market, retailers may agree to reserve new products under the condition of providing sales subsidies. The order frequency is unstable. Out-of-stock items will greatly offset promotional efforts, and the percentage of products that are not recognized by the market and die is high. At this time, when designing the supply chain, raw materials and components should be purchased in small batches to minimize the company's own inventory, but at the same time maintain information sharing with the supplier to enable fast and timely delivery. For enterprise production logistics, it is also necessary to be able to flexibly produce according to orders on the basis of reducing the inventory of finished products. In terms of sales logistics, improve distribution channels and simplify the traditional channel model of "producer-dealer-retailer", because the more intermediate links, the longer the delivery cycle, the worse the delivery quality, and the The distribution of small quantities of goods is difficult to form a scale effect, the more intermediate links, the greater the logistics cost.

Growth stage

In the growth stage of the product life cycle, the product has achieved a certain degree of market recognition, and the demand forecast is more accurate. The strategic task of the enterprise at this stage is to seize the market and expand the market share. Of course, this period also needs to start to recover the cost of the company's initial investment in the introduction period. The focus of logistics activities has changed from providing the required services at any cost to a more balanced service and cost performance. At this point, the key for an enterprise is to achieve a balanced sales volume as much as possible, and then expand its market coverage. In the growth stage, the challenge for marketing is to sell at the rate of demand growth. In order to meet the matching of the company's supply chain management strategy and competition strategy, companies in this growth cycle have started to change the original flexible supply chain design, started to turn to profitable supply chains, and pursued economies of scale to reduce costs to the greatest extent. At this stage, enterprises have the greatest opportunity to design logistics operations to obtain profits, and logistics activities have truly become the "third source of profits" for enterprises.

The countermeasures for logistics needs at this stage are as follows:

(1) Purchasing raw materials and shipping in large quantities. Because the biggest goal in the growth stage is to maximize market share and expand product visibility. Therefore, in order to meet customer needs and save corresponding costs, we can purchase and ship in large quantities, generate scale effects, and create greater sales growth points. This can also put pressure on new competitors to consolidate the company's own market status.

(2) Establish an extensive and intensive distribution logistics system. In the growth stage, in order to expand market share and consolidate market position, enterprises will establish an extensive and dense product distribution network, and the construction of this network is inseparable from the support of a strong logistics network. The logistics decision at this stage is to choose the appropriate distributor to stabilize its own sales network, establish a supply chain partnership with the distributor, and allow the distributor to timely feedback customer demand information in order to improve the existing problems of the product.

(3) Change the design of the supply chain and let logistics create "profits". The large-scale purchases and large-scale shipments caused by the increase in sales have made full use of the company's logistics system. The labor productivity and equipment utilization of logistics functions such as transportation, distribution processing, loading and unloading have also been greatly improved. Supply chain design and rational arrangement of logistics operations make the enterprise's supply chain a true "value chain".

3. Maturity period

After the growth period, with the increase in the number of people buying products, market demand tends to be saturated, and the product enters the mature stage. The profit margin of the product is reduced, and the uncertainty of potential demand is reduced. During this period, the company's strategic goal is to build a brand and extend the product life cycle with a product brand. The saturation and maturity stage has the characteristics of fierce competition, because the success of a certain product often attracts various alternative competitions. In response, adjusting prices and services has become a standard strategic measure for enterprises. In the face of fierce competition and low marginal revenue, companies must build customer loyalty and provide more value-added services in order to build their own brands. A large part of this is done by the logistics department. The core of logistics demand in this period. Generally speaking, there are two types of logistics decisions made by enterprises at this stage:

(1) Establish a large-scale distribution center to cover all sales networks and improve modern value-added logistics services. Because the demand is stable at this stage, the demand of each sales outlet and the delivery volume of the distribution center can be controlled, and how much is needed and how much is out of stock can be timely feedback. Because the company has established a broad sales channel during the growth period, the distribution route plan at this stage is equivalent to that already clear. The company needs to focus on the selection of the location of the distribution center and the choice of the distribution method. In general, in the mature and saturated period of the product, because customers are more sensitive to product prices, companies will increase sales through price reductions in the marketing perspective, so that the marginal revenue of the product is greatly reduced, so it is too expensive to do a direct distribution program. Therefore, in addition to large core customers, the distribution end point of enterprises generally reaches the warehouses of wholesalers and retailers, allowing customers to come to pick up the goods themselves. The location of the distribution center depends on the demand of each outlet.

(2) Logistics outsourcing, using third-party logistics companies to reduce logistics costs, while increasing value-added services. For the first countermeasure, the establishment of a large-scale automated distribution center requires enterprises to put forward higher requirements in logistics information systems, loading and unloading, and vehicle transportation, and requires a large amount of capital investment. For small and medium enterprises, this It is difficult to achieve. In addition, since the goal of the company at this stage is to build a brand, that is, to build the core competitiveness of the company, the improvement of logistics services is to improve the competitiveness of the company, not to become the core competitiveness of the company. In this way, the company should distinguish the primary and secondary, and the logistics needs at this stage are left to the third-party logistics company to complete. This will not only reduce logistics costs, but also enjoy professional services provided by specialized logistics companies.

4. Recession

With the development of technology, the emergence of new products and alternatives, and changes in consumer habits, product sales and profits have continued to decline, and the product has entered a recession. The demand and sales volume of products are rapidly falling, and at the same time, substitutes and new products appear in the market, which changes the consumer's consumption habits. At this time, the enterprises with higher costs will cease production due to unprofitability, and the life cycle of such products will gradually end, and eventually they will completely withdraw from the market.