PRODUCT AND SERVICES MANAGEMENT GEORGE J. AVLONITIS AND PAULINA PAPASTATHOPOULOU &%44 Product and services management and Swan and Rink (1982) identified eleven different product life cycle forms, while Kotler (2003) describes eight different PLC shapes. All in all, these authors postulate that product sales in a given time frame (for example, a year) do not necessarily fol- low an § curve, but can, for instance, go up and down quite sharply (for example, fad products), or follow a scalloped pattern, when sales pass through a success of life cycles based on discovery of new product characteristics, users or uses (for example, new uses have been added to 3G Cellular phones). 2. The changes in the company’s external environment as well as the demand of the product from one year to the other make it difficult for a company to predict when the next stage in the product life cycle will appear, how long it will last and what the levels of sales will be. 3. One cannot often judge with accuracy in which stage of the life cycle the product is. 4 The major stages do not divide themselves into clear-cut compartments. At certain points a product may appear to have attained maturity when actually it has only reached a temporary plateau in the growth stage prior to its next big upsurge. The time-dependent PLC model is insufficient for two reasons: first, the PLC is partly endogenous ~ the long term pattern of sales is determined by the strategic decisions of management. Secondly, exogenous factors are not adequately modelled as random error around the time dependent PL Despite extensive criticism levelled at the product life cycle model, it remains a useful tool for planning the launching of new products, establishing price policies, planning the timed use of the marketing mix and undertaking cash flow and financial investment appraisal In the remainder of this chapter, there is a detailed presentation of the alternative marketing strategies, which can be used for products and services at the various stages of their life cycle. Marketing strategies at the introduction stage When a company launches a totally new product/service on the market, it may select one of the following marketing strategies (Walker et al., 1999): «mass-market penetration; * niche penetration; + skimming and early withdrawal. Mass-market penetration ‘This strategy aims at persuading as many potential customers as possible to adopt the new product/service in order to achieve a decrease in the unit cost and to create a large base of loyal customers before competitors enter the market. The ultimate objective of mass- market penetration is to capture and maintain a large market share for the new offering. Very often mass-market penetration can take the form of either slow penetration or rapid penetration strategy depending on the price set and promotion expenses made (Kotler, 2003): * Slow penetration strategy: the product/service enters the market at a low price and lim- ited promotion expenses. The implementation of this strategy requires the existence of a large potential market which is highly aware of the product/service, that is price sensitive and further, there is some potential competition.Product life cycle and marketing strategy © Rapid penetration strategy: the product/service enters the market at a low price, despite high promotion expenses. In order to implement this strategy, a large potential mar- ket should be unaware of the product/service. Most potential customers should be price sensitive and there should be strong potential competition, while considerable economies of scale can be achieved with increases in production. In order for a company to use a mass-market penetration strategy, the following condi- tions must be present: 1 There is large potential demand. Potential customers are price sensitive, therefore a low price can lead to market development. 3 There exist economies of scale. 4 Low pricing can discourage existing and potential competition. 5. The product/service life cycle is long 6 There are product/service substitutes. 7 Barriers to market entry are practically non-existent. 8 Product technology is easily copied. 9 There are many potential competitors. 10. There are many sources of raw materials and components supply. 11 Product process is rather simple. 12 Potential competitors have rather limited resources or skills. 13. The company has extensive marketing, financial, product engineering skills and resources. A mass penetration strategy can be implemented using the following marketing mix tools: * rapid product line extensions to appeal to multiple segments; * low pricing or alternatively high pricing followed by lower-priced versions for facing potential competitors; * trade promotions and extended trade terms to encourage initial purchases and gain extensive distribution coverage; + sales promotions in the form of couponing, sampling and quantity discounts to gen- erate initial retail purchases Niche penetration When the company has limited resources it can strive to gain a leading position in a spe- cific market segment. In other words, the company can aim at maximizing the number of customers that try and adopt the product/service, focusing its efforts in a particular niche market, instead of trying to gain and maintain a leader's position in the total mar- ket. This strategy can help pioneering companies to make a more efficient use of their limited resources and avoid direct confrontation with larger competitors. As far as implementation is concerned, niche penetration requires similar tactics as the mass-market penetration strategy. The only difference is that, instead of extending the product/service line, the company must modify and improve its product/service in, order to increase its attractiveness in the target market. According to Walker et al. (1999), the situations favouring a niche penetration strat- egy are as follows: 45