What Is The Importance Of The Concept Of The Product Cycle For Business Planning And Budgeting?

1572 words - 6 pages

INTRODUCTIONThe product cycle concept states that all products have a life span. Since the desirability and sales of a product changes at different stages of a product's life, product concept and strategy always need constant revision. Product cycle can apply to both a category of a product or a brand and underlines most business planning models because of sales and profitability. It has a number of stages which are usually characterised by the amount of revenue brought in by the product at certain stages. All products have varying life spans depending on several factors; some have shorter spans like months whereas some items last a lifetime such as petrol fueled vehicles. In any event, when a business decides on putting out a new product the concept of the product cycle is of utmost importance to planning and budgeting. The product cycle concept suggests that all products go through these phases:DEVELOPMENT STAGEAt the development stage, there is no revenue as this is the incubation stage of the product.The technical feasibility of manufacturing the product at an acceptable cost should be thoroughly examined. Excessive market research is factored into planning as well as concept development and testing. Plans will also be put in place for copyright, patents etc. and firms will have to substantiate a budget for this as well as a time frame as to when the product is expected to be ready for the market. The management process is:Test MarketingLimited market testing is done to determine how potential customers react to the product. This allows management to evaluate alternative strategies and assess how well the various aspects of the marketing mix fit together.CommercializationThe decision to market a product.The last of the process is ordering production materials and equipment, starting productions, building inventories then introducing the product.INTRODUCTION STAGEAn example of a product currently in its introduction stage is new soft drink 'Classics' launched in March 2008 by Schweppes.At the introduction stage costs for the firm are high as profits are non existent or very little due to low sales and high distribution and promotion costs. Promotional costs are high as the firm concentrates a lot of effort on persuading, informing and influencing market users to try the product to build and increase demand for the product. A strategic and tactical plan is put in place with a launch strategy and product launch.The strategic plan looks at competitive stance, i.e. current market situation, similar products if any and helps the company plan market positioning. A competitive strategy analyses the strengths, weakness; opportunities and threats (SWOT) to the product, a marketing strategy to define the necessary steps needed to achieve the company's objective for the product and to select ways of attracting and approaching customers like targeting select groups is planned.A marketing plan is integral to positioning the product and the company uniquely...

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