[MUSIC] Hi, welcome back to the product module. In today's lesson, we will introduce the notion of a product life cycle, and why it is so important. How could we define product life cycle? Well, a product is a living entity, and as such it has a limited life. It is conceived and born, it grows, hopefully it reaches a peak until it matures, and then over time it dies. It is important to know all the stages that a product goes through in order to understand what to expect at every stage, and how to manage the product over this life. If you want to define product life cycle, we could use Professor Kotler's definition, who said that product life cycle is a model that describes the stages that the product or the product category passes through, from its introduction to its removal from the market. In a way, product life cycle is a model that suggests that sales of a product grow and mature, and then decline as the product becomes obsolete and customer demands change. In short, and following the CIMA, which is the Chartered Institute of Management Accountants, official terminology states, we can say that product life cycle is the pattern of demand for a product over time. We marketers are in charge of managing the product life cycles of our products and our product portfolios, as such products are like patients, and we are like doctors trying to keep their health. Anticipating what is likely to happen in every life stage, all over different sets of variables, or key performance indicators. For instance, in the introduction stage, we can expect sales to be small, but beginning to grow, and costs to be high related to the product's launch cost. Births are normally and always expensive. Because of that, profits at this stage are negative. Customers are very few, only the innovators and the early adopters and if the industrial sector is not mature, competitors are also very few. At the product level, we offer only a very basic product and at a very high price. The distribution normally is limited to a very low geographic coverage and promotion actions are focused on educating the consumer about the product benefits rather than on the name of the brand. The names of the game at this stage are sales and market expansion, customer education and customer adoption. I'm going to give an example, when the first mobile phones were introduced in Spain in the early 90's, the designs of the handsets would be like a shoebox, heavy, and you could only speak in very limited areas, because the network did not cover the whole country. In spite of that, believe it or not, a cell phone could cost up to 3,500 euros of today. And it was considered like a status symbol. It was trendy to have a cell phone and very expensive. As time passes by and we enter into the growth stage, we expect sales to grow fast. As the number of clients increases, costs begin to stabilize. And because of that, profits begin to show up. As competitors also begin to grow attracted by growing profits, we have to touch over price in order to keep market penetration, while simultaneously increasing the number of features in the product to stay ahead of our competitors. On the distribution side, we have to strengthen distribution system in order to be able to cope with an increasing amount of customers, while on the communication side we have to begin to educate the our customers on the brand rather than on the product, as in the initial stage. Following the mobile phone example an example as many operators entered into the market in Spain in the 90's, cell phone prices began to fall drastically helping to increase customer adoption, and handsets began to be more commonplace and at the same time more economic. Simultaneously, distribution and our coverage expanded significantly. In the third phase, the maturity stage, you reach a market saturation point. Sales reach a peak and because of that we begin to see price wars that begin to hurt profits. As a product becomes a commodity, competition is focused on price. And because of that, the name of the game is market share and customer retention. The number of competitors stabilized at this stage and there is no room for more competitors, and the weakest disappears as the market consolidates. Products show a high variety of models as marketers begin to target different customer needs in order to avoid prices and margin erosion. And as we said before the name of the game is customer retention rather than customer adoption as in the initial stages. Going back to the mobile phone industry, today, a mobile phone is much better than 20 years ago, and prices are just a fraction of the initial prices. In the last stage, the fourth phase called decline, we may expect the sales of our product to drop as newer, more developed products of superior entity replace our old ones. Because of that our clients begin to disappear and profits also decline following the sales fall. The only thing we can do as doctors at this stage is to accompany our patients in order to extend their lives as much we can, minimizing the costs related to keeping them alive. Prices normally fall, many players exit the market, and distribution channels begin to be reduced in accordance to the customers reduction, with the objective of keeping costs down. Following our communication example today, there weren't this mobile and fix telephones, which was the king until the 90's, is in this decline stage today. And the same happens with other industries, such as financial industries. What is the name of the game with the physical branches network today. As online banking becomes the most important way to conduct financial transactions, we see a sigificant reduction of branches. And this is all for today's lessons. Thanks a lot, and I look forward to meeting you at our next lesson where we are going to discuss the concept of planned obsolesence, thank you very much.
